AmEx’s Growth Initiatives, Promising Holiday Spending Forecast Support $51 Value

American Express (NYSE:AXP) recently announced plans to set aside $100 million to invest in start-up companies in the digital commerce segment. Last month, the company reported a 13% increase in net income from operations to $1.24 billion compared to the prior year quarter. The anticipated increased in consumer spending in the holiday season is expected to benefit AmEx and its competitors Visa (NYSE:V) and MasterCard (NYSE:MA).

We have revised our price estimate for American Express to $51 to reflect improved credit and spending volumes, as well as the rise in expenses as reported in Q3 earnings.  Our estimate is about in line with the current market price of the stock.

See our complete analysis of American Express Stock here

Investing to grow in digital space

AmEx has previously invested in several digital commerce and payment initiatives, such as its online payment platform ‘Serve’ and partnerships with Facebook, Zynga, Foursquare, Verizon and Sprint. In a formalized effort to actively participate in the budding online payment industry, the company has recently planned a $100 million fund to invest in early stage businesses concentrated in digital commerce, including online and mobile payments, rewards, and fraud detection. ^[1] The multi-year plan aims to develop technologies to grow in the digital space and deepen connections with customers. We believe this will position the company favorably in seizing the opportunities to grow in digital commerce and finding companies to acquire.

Greater holiday shopping outlays expected

According to a poll by American Express, shopping budgets are expected to increase by 17% over last year in the U.S., even when consumers are unlikely to reduce savings. ^[2] Overall, the increase in consumer spending is expected to assist the company’s revenue growth, whose transaction revenues constitute 71% of the Trefis price estimate.

The company reported $7.57 billion in total revenues, net of interest expense, up 9% compared with last year. This expansion was backed by increased customer spending and reduced provision for losses due to improved credit, partially offset by low net interest yields. ^[3]

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Amex looking for deals in Silicon Valley, Reuters [↩]
2. Holiday Gift Budgets Get a Bump; but Consumers Won’t Abandon Money Saving Ways, American Express News Release [↩]
3. AMERICAN EXPRESS REPORTS THIRD QUARTER EPS OF $1.03 UP 14% FROM A YEAR AGO; REVENUES RISE 9% TO $7.6 BILLION, American Express Press Release [↩]