American Express: A Strong Long-Term Investment Choice
American Express (NYSE:AXP) remains a dominant player in the financial services industry. With a market capitalization exceeding $220 billion, it is smaller than Visa and Mastercard but maintains a strong presence. The company’s ability to deliver consistent financial performance, coupled with a forward-looking strategy, makes it a solid long-term investment.
The company’s recent earnings report highlights its impressive growth trajectory. With over $17 billion in revenue, American Express recorded a 9% year-over-year (YoY) increase. More importantly, its earnings per share (EPS) grew by an outstanding 25%, reaching $14 per share. This growth translates to a price-to-earnings (P/E) ratio of approximately 23x, demonstrating strong investor confidence.
Consistent Growth in Revenue and Profitability
American Express has exhibited robust revenue growth, driven by its ability to attract high-spending customers and offer premium financial services. The company’s latest earnings report shows:
| Financial Metric | Value | YoY Growth |
| Total Revenue | $17 billion | 9% |
| Net Income | $2 billion | 25% |
| EPS | $14 | 25% |
| P/E Ratio | ~23x | – |
| Dividend Yield | ~1% | – |
| Share Buybacks | 3% Reduction | – |
In addition to strong financials, American Express continues to focus on shareholder returns. The company has successfully reduced diluted shares outstanding by 3%, which enhances earnings per share for long-term investors.
Business Performance and Loan Growth
A key driver of American Express’ long-term success is its ability to expand its customer base and increase loan growth. In the last quarter, the company saw a 9% YoY increase in its total loans and card member receivables, reaching $208 billion. This steady growth in lending activity highlights the company’s strong customer trust and credit quality.
| Business Metric | Value | YoY Growth |
| Total Loans and Receivables | $208 billion | 9% |
| Growth in Net Card Fees | 18% | – |
| Discount Revenue | $9 billion | 5% |
| Net Interest Income | 18% | – |
American Express generates significant revenue from discount fees, which is the amount merchants pay for accepting its cards. This revenue stream reached over $9 billion, showing a steady 5% increase. Additionally, the company witnessed an 18% rise in net card fees as more customers opted for premium cards.
Maintaining a Strong Credit Portfolio
Despite a growing loan book, American Express has successfully maintained high credit quality. The company’s 30+ day delinquency rate remains at 1.3%, down from the pre-pandemic level of 1.5%. Additionally, the net write-off rate has declined to 1.9%, reflecting improved credit quality and responsible lending practices.
| Credit Quality Metric | Current Value | Pre-Pandemic Value |
| 30+ Days Delinquency Rate | 1.3% | 1.5% |
| Net Write-Off Rate | 1.9% | 2.1% |
| Total Provisions | $1.3 billion | $1.4 billion |
The company’s ability to keep provisions below 3% ensures financial stability, reducing risks associated with potential loan defaults.
American Express’ Commitment to Shareholder Returns
American Express prioritizes returning value to shareholders through dividends and aggressive share buybacks. In the most recent quarter, the company returned nearly $8 billion to shareholders, amounting to 4% of its market capitalization. Over the past five years, American Express has reduced its outstanding shares by 15%, and over the last 14 years, the reduction has reached 40%.
| Shareholder Return Metric | Value |
| Dividend Yield | ~1% |
| Share Buyback Reduction | 15% (5 years) |
| Total Capital Returned | $8 billion |
This strong commitment to reducing outstanding shares increases the value of remaining shares, benefiting long-term investors.
Future Growth and Market Positioning
American Express has set ambitious growth targets. The company aims for double-digit revenue growth and mid-teens EPS growth. For 2025, its EPS projection stands at $15.25 per share, representing a 14% increase. If the company achieves this, its P/E ratio could fall to 20x, making it an even more attractive investment.
| Growth Projection | Expected Value |
| 2025 EPS Projection | $15.25/share |
| Projected EPS Growth | 14% |
| Target Revenue Growth | Double-Digit |
American Express’ strategic focus on high-spending consumers and premium credit offerings allows it to differentiate itself from competitors. While Visa and Mastercard primarily act as payment networks, American Express directly issues credit, giving it greater control over customer relationships and revenue streams.
Challenges and Competitive Landscape
Despite its strong performance, American Express faces competition from Visa, Mastercard, and emerging players. Additionally, the recent merger between Capital One and Discover could introduce a new competitive dynamic in the industry. This merger could create a stronger competitor, similar to how the T-Mobile and Sprint merger disrupted the telecom sector.
Furthermore, economic uncertainty and potential regulatory changes could impact the company’s ability to sustain its growth trajectory.
A Solid Long-Term Investment
American Express continues to demonstrate financial strength and strategic growth. With its ability to increase revenue, maintain credit quality, and focus on shareholder returns, the company presents a compelling case for long-term investors.
Key takeaways include:
- Consistent revenue and EPS growth.
- Strong credit portfolio with minimal delinquency risk.
- Commitment to share buybacks and dividends.
- Focus on premium customers and differentiated services.
- Competitive risks from industry consolidation.
As long as American Express continues executing its strategy effectively, it remains a valuable investment for those seeking sustainable long-term returns.
