American Express (NYSE: AXP) : Business Description Competitive Analysis

American Express (NYSE: AXP)
Sector: Financials
Target Price Current Price 52 Week High 52 Week Low P/E Market Cap. Dividend Yield Beta
$133.26 $108.01 $111.17 $87.54 15.90x $92.951 B 1.44% 1.16
Business Description Competitive Analysis

American Express is a global payment and travel company. They American Express’s main competitors include card issuers like
offer charge and credit payment products and travel related services Visa and MasterCard along with bank issuers like JP Morgan
for consumers and businesses around the world. Their business can Chase, Citigroup, Bank of America, Synchrony Financial and
be broken down into US Consumer Services, Global Commercial Discover. While they compete in both industries, their closed loop
Services, International Services and Global Merchant services. business model sets them apart from their competition. The only
They are a truly global company, operating in more than 40 business with a similar system is Discover, and they are not nearly
countries worldwide. The vast majority of their revenues come as global as American Express. Additionally, Amex boasts the
from their spend-centric business model. lowest charge off rates and the best credit in the industry due to the
Industry Trends premium nature of their customers. On top of that, American
After taking a large hit during the recession; the payments industry Express customers spend 5x as much per account compared to the
is making a comeback during these strong economic times. While industry account average. Since they have premium customers, they
American Express operates in both the card issuing and bank are also able to give larger lines of credit with more certainty,
issuing industries, its main competition is Discover because of their resulting in extremely high revenues.
similar closed loop business model. However, American Express is Competitive Advantages
far more global than Discover and has higher quality customers AXP’s spend-centric model allows them to make back a percentage
(better credit, higher spending). In this macroeconomic boom, of every purchase facilitated by their card. Their extremely high
American Express is well positioned to ride industry tailwinds to spending customers (paired with their great credit) bolster this
strong results. advantage. Additionally, their closed loop system gives them
Investment Thesis numerous fee-based and data based advantages unmatched by any
American Express can deliver consistent value from their position other company. Their digital presence has increased with industry
in the expanding payments industry, their industry leading leading digital integration and capture of millennial customers.
innovation and reputation as a premium brand. The expanding Thirdly, their premium brand is a competitive advantage in itself.
payments industry is led by the generally positive outlook for the No competitors can compete with their rewards program or market
economy and an increase in global card use. Amex’s industry share of corporate spending, which essentially forces merchants all
leading innovation is characterized by their top notch rewards around the world to accept Amex.
program, expansion into the digital payments space and successful
capture of high quality millennial customers. Their premium brand Risks
has never been in question, boasting the industry’s best credit Losing a branded card relationship like Costco could be
quality backed by their closed loop business model. catastrophic for the AXP stock price and the business in general.
Valuation Assumptions and Key Financials Additionally, Amex’s premium brand is key to many of their
WACC: 8.5% Current stock price: $108.01 competitive advantages and tarnishing that brand would severely
Terminal Growth: 2.0% Intrinsic Value: $133.26 hurt their business model. A third risk is increasing price
Upside: 23.4% competitiveness as rewards and merchant discount rates increase
Sources: Bloomberg, Annual reports around the world. Credit risk is an inherent problem for companies
Corporate Social Responsibility like Amex, but their low charge off rate somewhat hedges this
-Contributed $36 million through employee gift matching in 2016 problem. However, an unexpected increase in their loan loss
-30% carbon reduction compared to 2011 (beating goals by 10%) provision would substantially impact their ability to make money.
-85% carbon-free electricity in US Building Operations A final risk facing American Express is technology risk, as their
5-Year Stock Performance expansion into digital mediums increases threats of fraud and
hackers.
Report Prepared By:

Sean Homa and Matt Arons on 9/27/2018

American Express (NYSE: AXP) : Business Description Competitive Analysis

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