American Express Company (AXP, Financial) (AXP – $90)
American Express has improved its cardholder value proposition in recent years by making significant investments in merchant acceptance, cardholder rewards and services, and small business payment tools. These efforts have accelerated both new card issuance and cardholder spending, and management has committed to reinvesting a portion of these incremental profits into further improvements in the company’s value proposition. We believe this virtuous cycle of growth and reinvestment will allow American Express to continue growing its business at a high single-digit pace in the coming years while investing enough to protect the business from competitive threats. The organic growth that we expect, combined with potential share repurchases, should result in double-digit EPS growth in a typical year, while the company’s high returns and low credit risk should result in peer-leading results during the inevitable downturns. Management is making the right investments for the long term while also returning excess capital to shareholders. The shares are currently trading at just 11x last year’s EPS, which we believe is too cheap for this caliber of business.
From Bill Nygren (Trades, Portfolio)'s Oakmark Fund first-quarter 2020 shareholder commentary.
