American Express: A Compelling Buy

American Express (AXP) blurs the line between a traditional credit card company and effecting traditional banking services such as personal and business loans and savings accounts. This business model blend makes American Express a dual-threat as it can ride the wave of improved consumer spending coming out of the pandemic as witnessed by its blow-out second-quarter earnings and rising interest rates as the Federal Reserve steps off its accommodative easing policies. American Express has recently dropped over 10% from its 52-week high after target price hikes and upgrades across a broad range of analysts. Couple this with inexpensive valuation metrics, and the fundamental and technical investment case comes together nicely. American Express sits in the sweet spot of an improved consumer and a potential rising interest rate environment.

Latest Earnings and Growth

The recent earnings report by American Express demonstrated its strength and potential growth moving forward as the pandemic continues to subside. Analysts across the board upgraded the stock and increased the price targets because of these stellar earnings. Earnings blew past analysts' estimates, driven by a recovery in global consumer spending, specifically on travel. Consumer spending logged double-digit growth in the second quarter. The U.S. consumer has "rocketed ahead on travel," per CFO Jeff Campbell, with spending related to travel and entertainment on its cards within the United States reaching 98% of pre-pandemic levels. On global travel and entertainment spending, he said it had recovered to nearly 70% of 2019 levels, two quarters earlier than previously expected. Strong demand for premium, fee-based products helped drive the addition of U.S. Platinum card members to record levels, per CEO Stephen Squeri. The company sold 2.4 million new proprietary cards in the quarter, while spending on goods and services on its cards grew 16% on a currency-adjusted basis. Net income rose to $2.28 billion, or $2.80 per share, for the quarter ended June 30 from $257 million, or 29 cents per share, a year earlier. Analysts had expected $1.67 per share, according to Refinitiv IBES data. Excluding interest expense, American Express’ total revenue rose 33% to around $10.24 billion. Continue reading "American Express: A Compelling Buy"