The STRIDE Blog

American Express Transforms eCommerce & Apple is their Key

stride-american-express-is-transforming-e-commerce-and-apple-is-the-key-to-making-their-membership-truly-mobile-blogSummary

  • American Express has strategically placed itself as the top player in 'future' card services.
  • We are forecasting 4.5% growth but can see that accelerating with the new 'truly mobile' push.
  • The business is currently trading at our fair value, but is one to watch - especially when the market turns.
  • Apple Pay has the ability to drive massive growth at American Express, especially if Serve functionality is available.

The management team at American Express (NYSE:AXP) must've been ecstatic when the Apple (NASDAQ:AAPL) team approached them about Apple Pay. They have positioned themselves strategically as the go-to player for mobile and new technology commerce solutions, and this was the cherry on the cake.

Transforming commerce

American Express has been building partnerships for the past 2-3 years focused on transforming commerce. New partnerships with Twitter, TripAdvisor, VeriFone, Samsung and Apple all prove their commitment to a new wave of commerce solutions, reward methods, payment methods and customer interaction tools that will drive the industry forward for years to come. Hats off to the management here, they were certainly looking to 'jump to the next curve'.

Expanding the network

The global merchant services team has been expanding the reach dramatically in the past few years. With new merchants ranging from European airlines to Mexican convenience stores, key partnerships with new card-issuing partners and the launch of Samsung Wallet plus Apple Pay, it's clear to see the company is gearing up for rapid global growth.

Going for growth

The business has grown it's card members by over one million new members every quarter. Couple this with everything mentioned above and the fact that they are driving average spend up per card member through rewards and a wider network of merchants and you have a recipe for explosive growth.

STRIDE ratings

The company gets a fairly clean bill of health. Returns are good for a merchant services business and the business has ensured earnings have become more and more predictable as the company has executed on strategy. Unfortunately, strength has dipped as a result of their increased activity (and associated risks) so it would be good to see them focusing on getting this back above 60 where it belongs. Their dividend policy is fair but, at roughly 1%, isn't significant enough to get anyone that excited. We find comfort in their intrinsic value rating as the business has a solid book value and ensures good cash, net working capital and asset levels relative to debt and market cap.

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4.5% growth forecast

Our engine has pegged growth at 4.5% which I actually believe is a tad low. I'm always happy when I see this as it generates an additional margin of safety for investors. However, I do feel that American Express is geared for solid double digit growth based on the softer factors that the engine can't see results on yet. It will definitely be interesting to watch this evolve.

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Unfortunately, we didn't buy in 2009 when it passed below our consider buy price as the earnings predictability score didn't meet our criteria. Suffice to say we would be sitting on a 700% increase. Ho-hum. The thing is that this business is on my permanent watchlists, keeps on hitting screens I setup and is the first card out of my wallet when I pay for something.

We would recommend holding and waiting for the next 2009 (or some other setup that allows entry) and getting in when the time is right.

For those of you holding it, well done.

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Images is altered. Photo credit: SimonQ錫濛譙 via photopin cc

Topics: Global Markets News, International Investing, Valuation

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