The firm is well known as the third largest credit card issuer. Unlike Visa (V) and Mastercard (MA), it mostly issues its own cards and signs up merchants directly rather than by partnering with banks. This makes AXP a sort of hybrid.
While it is a credit card network, it is also a bank that takes in (wholesale) deposits to fund its card receivables, which are effectively short-term loans to card holders. It focuses mostly on more affluent consumers as well as business customers.
Revenues per share have been soaring at an average rate of about 35% over the past four quarters in part due to the post-pandemic travel rebound. Management is targeting longer term revenue growth in excess of 10% and earnings per share growth in the mid-teens.
Earnings per share have also increased sharply but the rate of increase was distorted by volatile allowances for credit losses followed by reversals of some of the expected losses as the economy reopened.
The price to book value ratio is ostensibly unattractively high, in isolation, at 5.0, but this reflects the high return on equity and is not an important indicator for this company.
The dividend yield is modest at 1.4% but reflects a payout ratio of just 21% of earnings. The p/e ratio based on trailing earnings is attractive for this high-quality company at 14.9. The return on equity is very high at 32%. Overall, the value ratios indicate a very strong company that is likely somewhat undervalued and therefore easily supporting a rating of Buy.
American Express is a high-quality company that is benefiting from the continuing switch to card and electronic payments and away from physical cash. While there are risks in terms of credit losses and competition, the company is projecting strong growth and the valuation is attractive.