This stock continues to issue new credit cards and profit from increased spending by cardholders.
In the most recent quarter, revenue rose and earnings per share jumped 24%. In 2018 the company signed an exclusive alliance with one of the world’s major hotel chains and also benefited from a favourable ruling by the U.S. Supreme Court on its “swipe fees.” It recently raised its dividend, while the shares trade at just 14.7 times projected earnings.
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AMERICAN EXPRESS CO. (New York symbol AXP; www.americanexpress.com) is one of the world’s largest issuers of payment cards. As of September 30, 2018, it had 115.1 million cards in use across 130 countries.
The company issues both traditional credit cards, which let users carry a balance, and charge cards, which have no pre-set spending limit but must have their balances paid in full each month. The U.S. contributes about two-thirds of Amex’s revenue.
In June 2018 the U.S. Supreme Court ruled that the company’s “swipe fee” policy does not violate anti-trust laws.
Amex typically charges merchants that accept its credit and charge cards a swipe fee of roughly 5% of the transaction’s value. Those fees help fund its cardholder reward programs.
However, Amex’s fees are higher than the 2% charged by Visa, MasterCard and other credit card issuers. As a result, merchants would entice shoppers to use cash or lower-fee cards with special incentives and offers. The court ruling prevents merchants from expressing a preference for non-Amex cards.
The company also passed the U.S. Federal Reserve’s latest “stress test.” It measures how such firms would cope with a jump in unemployment, falling stock prices and other unfavourable conditions.
As well, Amex formed a multi-year alliance with Hilton Worldwide Holdings Inc. (New York symbol HLT). The firm operates over 5,000 hotels in 103 countries. The deal makes Amex the exclusive issuer of Hilton Honors co-branded credit cards in the U.S.
Dividend stocks: Falling tax rate, job cuts due to save $1 billion in 2018
Amex issued 2.2 million new charge and credit cards in the 12 months ended September 30, 2018. During that time, average spending per card rose 4.1%.
As a result, the company earned $1.65 billion in the latest quarter, up 21.7% from $1.36 billion a year earlier. Due to fewer shares outstanding, earnings per share improved 24.5%, to $1.88 from $1.51.
In addition to the new cards and higher spending, Amex’s effective tax rate fell to 21.9% from 25.8%. An ongoing restructuring plan, including job cuts, should also save the company $1 billion a year starting in 2018.
Revenue in the quarter rose 9.2%, to a record $10.1 billion from $9.3 billion. However, due to the higher lending volumes, loan-loss provisions rose 6.1%, to $817 million from $770 million.
The company now expects to earn between $7.30 and $7.40 a share for all of 2018. The stock trades at 14.7 times the midpoint of that new range.
Starting with the November 2018 payment, Amex raised its quarterly dividend by 11.4%. Investors now receive $0.39 a share instead of $0.35. The new annual rate of $1.56 yields 1.5%.
Recommendation in Wall Street Stock Forecaster: American Express is a buy.
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