American Express CompanyAXP

Morningstar Rating

Stock Research and Analysis

by Michael Kon, CFA

American Express operates the most successful closed-loop credit card network in the United States and many other profitable card businesses around the world. Although the Amex card isn't yet as widely accepted as Visa V or MasterCard MA, the firm has evolved from a niche player into a global payment giant. Read more

Bulls Say

Consumers worldwide are increasingly using cards and other electronic forms of payment instead of cash and checks, which should lead to strong long-term growth tail winds for Amex's spend-centric business model.

Through cost savings from re-engineering, Amex has been able to significantly increase its expenses for building future business, such as marketing, promotions, and member rewards, without cutting into profitability.

The spin-off of its capital-hungry financial advisory unit allows Amex to focus its efforts on the card businesses, which have been much more profitable with less investment in capital. Read more

Bears Say

The credit card industry is saturated, and competition from the best players will erode profit margins by making it more expensive to attract and retain customers.

Across the industry, credit card customers carry more debt than ever. A rise in delinquencies could hurt Amex's lending products and translate into lower earnings.

Regulation is likely to hit profitability and to limit some of the flexibility embedded in credit card lending. Read more

Strategy

In addition to increasing consumer charges for travel and entertainment (its mainstay), American Express is aggressively targeting consumers' everyday spending through its charge card and credit card products. Read more

Management

CEO Ken Chenault has managed admirably through some difficult times. After recovering from the 9/11 attacks and heavy losses in non-investment-grade debt in the financial advisor segment, Chenault pursued a companywide process-improvement program that has produced cost benefits of more than $1 billion annually since 2001. Read more

Profile

American Express, best known for its flagship green charge card, is segmented into three main businesses: U.S. card services, international card and global commercial services, and global network and merchant services. Read more

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