American Express Company (NYSE:AXP)
American Express Company (NYSE:AXP) has enjoyed great success since coming back from its 2009 low. The improvement in consumer confidence has helped drive this stock forward. It has also been helped by its older, richer demographic who through their spending have delivered gains not only for American Express Company (NYSE:AXP), but also for the recipients of their spending like luxury discretionary brands LVMH Moet Hennessy Louis Vuitton, Michael Kors Holdings Ltd (NYSE:KORS), and Tiffany & Co. (NYSE:TIF). It also helps that Warren Buffett has held this stock since 1991, and owns a 13.8% stake in the company through Berkshire Hathaway; this has made the stock attractive to followers of Buffett.
For year-end, the company generated 5% revenue growth and 8% growth in Earnigns Per Share (EPS) to $4.40. There was an average spend per “basic proprietary card members” of $16,000 for a total of $880 billion on the year – a record for the company. Bank of America Corp (NYSE:BAC) saw a 7% year-on-year quarterly rise in average retail spend per its credit card customers, but didn’t offer an overall spend value. While Visa Inc (NYSE:V) similarly noted a 6% growth in processed transactions. However, American Express Company (NYSE:AXP) noted “Citi, Chase, and BofA continued to see an absolute decline in balances for the fourth year in a row”, an area where American Express Company (NYSE:AXP) was able to generate growth. This helped the company obtain a 15.6% share of the credit market as the debit card market ‘slowed‘. While its competitors fight across a relatively narrow (and stressed) demographic, American Express Company (NYSE:AXP) appears able to pick up the high-end and newly minted customers with relative ease.
The company has continued to fulfill customer expectations, delivering a 40% gain over the last five years in customer retention and has seen improvement in ‘recommend a friend’ metrics.
As with Ameriprise Financial, Inc. (NYSE:AMP), the company is engaged in a share buyback program, repurchasing up to $4.2 billion shares in 2012, with a dividend increase to $0.23 for the most recent quarter. The dividend yield stands at 1.2% (at writing), which is about that half of Ameriprise Financial, Inc. (NYSE:AMP), but better than Visa Inc (NYSE:V) or Mastercard Inc (NYSE:MA).
On the downside, there was the slap on the wrist as relates to customer disclosures for a number of issues , including debt collection and fee charges. These are key revenue sources for the company and damages not just the company’s bottom line but also its reputation as a premium consumer service provider. Consumers are willing to pay to be a part of the American Express brand, but if the company was to cock up again it would then be a case of ‘fool me twice, shame on me’.
Summary
Financials have enjoyed a great run over the first half of the year and it doesn’t look like the sector is losing any of its steam. Certainly, the strong equity market as helped Wealth Management companies like Ameriprise Financial, Inc. (NYSE:AMP). While improving consumer confidence has helped discretionary companies and payment providers.
The underlying recovery has been modest, but this has helped deliver capital returns in small steps. A longer, more sustainable recovery is better suited to the aforementioned equities than the ‘V’ style snap-back recovery many had originally hoped for.
Certainly, there is good reason for optimism going forward.
The article Time to Buy? Financials are Doing the Talking originally appeared on Fool.com and is written by Declan Fallon.
Declan Fallon has no position in any stocks mentioned. The Motley Fool recommends American Express. Declan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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