We came across a bullish thesis on American Express Company (AXP) on Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on AXP. American Express Company (AXP)’s share was trading at $255.38 as of April 14th. AXP’s trailing and forward P/E were 18.23 and 16.75 respectively according to Yahoo Finance.
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American Express (AmEx) differentiates itself in the global payments industry with its vertically integrated business model, which is distinct from the networks of Visa and Mastercard. Unlike these competitors, which primarily serve as intermediaries facilitating transactions between cardholders and financial institutions, AmEx both issues cards and processes payments through its closed-loop network. This model provides AmEx with complete control over the transaction flow, allowing it to develop direct relationships with its affluent cardholders. These relationships enable the company to capture higher transaction fees and offer tailor-made services to its premium customer base, enhancing customer loyalty and revenue generation.
Although AmEx accounts for only 4% of global credit cards, its transaction volume is disproportionately large, handling $1.7 trillion annually—about 9% of global volume, with a dominant 19% share in the U.S. The strength of its premium customer base is key to this success, as AmEx cardholders spend significantly more per transaction compared to users of competing networks. The average transaction for an AmEx cardholder is $150, far outpacing Visa’s $94 and Mastercard’s $91, allowing the company to charge higher merchant fees while maintaining competitive acceptance levels. Despite still trailing its peers in terms of acceptance breadth, AmEx is narrowing this gap, as merchants increasingly recognize the value of attracting high-spending customers.
AmEx’s revenue model is notably diversified, with 53% of its 2024 revenue projected to come from merchant fees, while 13% stems from cardholder fees—a fast-growing, recurring stream similar to subscription-based services. Additionally, AmEx generates 24% of its revenue from net interest income, which comes from lending operations. Although this is a smaller proportion compared to traditional banks, it remains a stable source of income. The company’s focus on high-income individuals also helps to mitigate credit risk, with delinquency rates significantly lower than those of its peers. The company’s delinquency rate stands at 1.3%, far below the 4% rate seen at competitors like Capital One.
AmEx’s business model has proven resilient, with the company consistently performing well in Federal Reserve stress tests. Despite perceptions of higher credit risk due to its dual role as card issuer and processor, AmEx has maintained stable financials and continues to generate growing, durable cash flows. This resilience was evident in 2024, as the company achieved record revenue, cash flows, and card member growth. With a 10% year-over-year revenue increase to $66 billion, AmEx surpassed its long-term targets, benefiting from strong consumer spending, especially in the travel sector, where its premium offerings excel. The company also saw significant growth in card member numbers, issuing over 13 million new cards in 2024, 70% of which went to millennials and Gen-Z.
AmEx has a strong track record of customer retention, particularly among premium cardholders, where its 98% retention rate underscores the loyalty its offerings command. Additionally, the company’s international expansion efforts have been successful, adding millions of new merchant locations and achieving 80% coverage across its top 12 international markets. AmEx’s loan portfolio remains stable, with low delinquency and write-off rates, and the company’s operating expenses have decreased as a percentage of revenue, from 30% in 2017 to 22% in 2024, reflecting improved efficiency.
The company also rewards shareholders through consistent dividend growth and share repurchases. The dividend, which has grown at a 10% compound annual growth rate over the past decade, is expected to continue increasing at a similar pace. AmEx’s stock, recently trading at an 18% discount to its five-year average multiple, presents an attractive investment opportunity. With the company’s strong growth trajectory and favorable long-term market positioning, shares are poised to offer significant upside potential. AmEx is projected to achieve 12% to 16% year-over-year EPS growth in 2025, and with a target price of $367 per share by 2027, investors could see annual returns of 16% to 20%. With its robust fundamentals and compelling valuation, American Express represents a solid long-term investment opportunity.
American Express Company (AXP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 71 hedge fund portfolios held AXP at the end of the fourth quarter which was 62 in the previous quarter. While we acknowledge the risk and potential of AXP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AXP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.