In general, the market has a bullish outlook towards American Express. The foresight is that profits will increase to $1.09 – an increase of 2% compared to this time last year. In fact, this bullish viewpoint not only spans on the outgoing quarter but also extends to the end of this fiscal year. Analysts are surefooted that revenue will increase to $32.07 billion at the end of the year, representing a 7% increase.
I believe that American Express has the edge in comparison with its peers. While most of its competitors grapple with low spending and hostile economic environments, it has managed to hold ground and arouse positive remarks from big names like Nomura. According to them, American Express is better positioned for the looming economic slowdown. In general, a good number of analysts are insistent that American Express shares will rise despite the rickety economic landscape.
Looking at the numbers, there is some real daylight between American Express and its competitors. Closely placed competitors like Visa (V) lag behind with regard to net income. Visa records a net income of $4.21 billion – hundreds of millions below American Express’ $4.92 billion. I find this incredibly interesting. Why? Visa has a greater market cap and lesser employees. It just doesn’t add up. Perhaps this indicates American Express’ unmatched dominance. Discover Financial Services (DFS) and MasterCard Incorporated (MA) are left in the sidelines to wrestle among themselves as they both reside in the $2.5 to $2 billion neighborhood with regard to net income.
It is now clearly evident that American Express currently exhibits the most incredible lineaments in its space. Nonetheless, as an investor, it is important to have foresight. What does the future hold in store for American Express?
I believe that the future is bright. Here are some reasons that candidly demonstrate American Express’ ability to deliver in the long haul.
Emphatic on meeting overlooked needs of consumers
Business 101 dictates that business exists for profit maximization. This is only partly true. The rationale behind the existence of business is the satisfaction of needs.
American Express knows this. In a display of tact, American Express has introduced an exemplary prepaid card. The card is geared towards meeting arguably the most overlooked need in the space… affordability. Consumers need affordable services. All the same, prepaid cards have been known to bear no reservations whatsoever for affordability. Practically every transaction on a prepaid card attracts transaction fees. With this new card, consumers can put a lid on the hefty expenses associated with prepaid cards.
This new card, launched last month, attracts no ordering costs. In addition to that, there are no hidden charges in the fine print. Another huge plus will be the ability to use the card overseas without additional costs.
Dan Schulman, the president of American Express, was noted for saying that the move was geared towards making American Express “a consumer champion.” Other incredible features, traceable to the prepaid card, include the absence of activation fees, zero charges on maintenance and free card replacement.
I believe that this move will enable American Express to filter through the prepaid niche. In addition to that, the move fortifies American Express’ position and widens the already big gap existing between it and competitors.
Moving with trends
It is also important to note that American Express places accents on keeping up with trends. This suggests that it wants to remain relevant in the fast changing technological landscape. Recently, varied stakeholders caught wind of the new secure chip technology that will be rolled out later in the year. Cards that use secure chip technology are much safer than the conventional magnetic strip cards.
Teaming up with relevant players
American Express’ most recent alliance with foursquare also suggests that the player has an eye for improving its market share. Foursquare, synonymous with the "check in" system, allows users to embrace the idea of checking into physical social settings via social media. As of now, foursquare has ballooned and boasts of $10 million users.
Under this alliance, American Express will extend discounts to cardholders who check into selected shops and restaurants.
I believe that American Express is a good buy. It has strong fundamentals, makes all the right moves and exhibits the potential to grow even bigger.