Is American Express (AXP) a Value Investment?
Many people consider American Express (AXP) a value investment because of its history. Notably, Amex is the most historic credit card company, and it has long been a favorite of Warren Buffett’s.
To explain, American Express (NYSE: AXP), or Amex, did not introduce credit cards; the largely forgotten Diner’s Club did that. Instead, American Express became the first widely recognized and used
Today, American Express is the 3rd largest credit card brand and 4th largest credit-card company with around 59 million cardholders worldwide, CardRates.com calculates. To clarify, the 3rd largest credit card company; JPMorgan Chase (NYSE: JPM), does not have own its credit card brand.
American Express is the credit card for Generation X
Interestingly, we can call American Express (AXP) a value investment because people in their prime spending years use it.
For instance, 32.06% of the U.S. Amex users in 4th Quarter 2018 were between 30 and 49 years of age, Statista estimates. Therefore, middle-aged people and Generation Xers, those born between 1965 and 1980, are most likely to reach for American Express.
People between 30 and 49 are most likely to have kids and be furnishing homes. Thus, Generation Xers are most likely to be spending a lot and the statistics show they like Amex.
Guess What Younger People are using the American Express Card
Counterintuitively, people those between 50 and 64 were less likely to use American Express. Statista calculates just 17.7% of the Americans using Amex fell into that age bracket in 4th Quarter 2018.
However, American Express is winning some younger fans. In fact, Statista calculates that 21.09% of those between 18 and 29 bought with Amex during 4th Quarter 2018. Hence, Millennials-those born between 1981 and 1998 will use American Express.
Thus the data proves that Americans of all age brackets will use American Express. Hence, the data does not support the belief younger people hate American Express.
American Express its everywhere where you want to be in China
Importantly, American Express is the first U.S. credit card company allowed to issue plastic in China. Specifically, Amex won permission to enter the People’s Republic where Union Pay operates the world’s largest credit network, The Washington Post reports.
Notably, Union Pay is now the world’s largest credit card network supporting seven billion credit, debit, and prepaid cards, The Post calculates. In contrast, Visa (NYSE: V) and MasterCard (NYSE: M) combined support 5.6 billion payment cards.
In particular, American Express is building a card network in China with the firm LianLian, The Post reveals. To clarify, LianLian and Amex will each own 50% of the Chinese card network.
However, it is unclear how valuable that venture will be because Chinese are unfamiliar with American Express. On the other hand, the network will make payment easier for foreign visitors in the People’s Republic.
American Express is Growing but is it Making Money?
American Express (NYSE: AXP) experienced some impressive revenue growth in 2019.
Specifically, American Express reports revenues of $28.86 billion for 4th Quarter 2018. That was a dramatic increase over $24.42 billion in 4th Quarter 2017 and $26.09 billion in 3rd Quarter 2018.
Moreover, American Express is making money off those revenues. For instance, Ycharts gives American Express a profit margin of 26.93% and a net income of $6.921 billion for 4th Quarter 2018.
More importantly, Amex is generating a lot of cash from its operations. For instance, American Express records $15.14 billion in cash from operations, $11.52 billion in cash from financing, and
However, American Express’s cash and short-term investments is down in recent months. Specifically, Amex reports $27 billion in cash and short term investments on 31 December 2018. That figure was down from $30.231 billion on September 30, 2018.
American Express is still a Value Investment
Hence, American Express is still a cash-rich company. Under these circumstances, I conclude American Express is still a value investment even at a price of $102.70 on 31 January 2019.
Moreover, American Express still offers a good dividend. For instance, the next dividend is 39¢ scheduled for payment on February 8, 2019.
Tellingly, that dividend grew by 4¢ in 2018. In detail, American Express paid a dividend of 35¢ on August 10, 2018, that grew to 39¢ on November 9, 2018.
American Express shareholders received a dividend yield of 1.52%, an annualized payout of $1.56, and a payout ratio of 21.5% on January 31, 2019. Plus, Dividend.com estimates American Express has experienced seven years of dividend growth.
However, Amex has proved it is capable of growth, so it is still a good value investment in credit cards.
