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American Express (AXP) Set to Grow on Strategic Initiatives

On Aug 14, we issued an updated research report on American Express Co. AXP. During the most recently reported quarter, the company’s earnings of $1.47 per share beat the Zacks Consensus Estimate by 0.7%, but witnessed a sharp 30% year-over-year decline.

Better-than-expected results were mainly backed by a lower tax rate and the effect of share buyback. However, when comparing year over year, the bottom line suffered as the year-ago earnings reflected the $1.1 billion gain recorded from the sale of the Costco Wholesale Corp. COST.

Overall results reflected solid progress against the company’s current priorities of accelerating revenue growth, optimizing investments and resetting the cost base.

American Express is set to benefit from continued secular growth of electronic payments globally. Convenience, security, and enhanced services and rewards for consumers continue to fuel growth in electronic payments.

The company remains focused on several initiatives to strengthen operations. These include renewed focus on its Platinum Card portfolios in the U.S., Small Business Saturday to leverage on the ongoing expansion of its merchant network in the U.S. through the OptBlue program. Through OptBlue the company has set an aggressive goal – to achieve merchant coverage on a par with Visa Inc. V and MasterCard Inc. MA in the U.S. by the end of 2019.  

Apart from taking measures to grow its top line, the company has also launched cost initiatives designed to remove $1 billion from its overall cost base by the end of 2017. Adjusted operating expenses decreased in the first half of 2016, reflecting progress against cost reduction initiatives. The company is on track to reduce $1 billion from cost based on a run-rate basis by the end of 2017.

American Express enjoys a strong capital position and is committed to enhance shareholders’ value. The company’s 2017 capital plan received the Federal Reserve’s approval, following which it announced a 9.4% hike in its quarterly dividend. The capital plan includes repurchase of up to $4.4 billion of common shares through the second quarter of 2018.
    
Nevertheless, the company continues to face an increase in provision for loan loss. Also, increased rewards and marketing costs in order to fold more business will hurt margins.

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American Express Company (AXP): Free Stock Analysis Report
 
Costco Wholesale Corporation (COST): Free Stock Analysis Report
 
Mastercard Incorporated (MA): Free Stock Analysis Report
 
Visa Inc. (V): Free Stock Analysis Report
 
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