AXP: Don’t leave home short

New York based American Express Company (AXP), founded in 1850, has suffered competitor encroachment and significant decline, leading AXP to reveal a remarkable offensive in 2017 making AXP a solid buy opportunity. 

AXP, including its subsidiaries, provides charge and credit payment card products to consumers and businesses worldwide operating through four segments: U.S. Consumer Services, International Consumer and Network Services, Global Commercial Services and Global Merchant Services. Its products and services comprise financial lending services, merchant acquisition and processing, servicing and settlement, merchant financing and point-of-sale marketing. AXP sells its products and services to consumers, small businesses, mid-sized companies and large corporations via online, direct mail, in-house, third-party vendors and direct response advertising.

AXP is in the process of increasing its benefits to its platinum charge card holders. Subsequently, it will increase the annual fee by 22% to $560 from $450 (its first increase since 2007). AXP’s intent is targeted toward customers who spend to offset the cost of the rewards that they provide as an incentive. AXP is taking this bold step in the face of its competitors who have attempted to erode AXP’s prolific rewards program. This competitive intrusion put AXP on the defensive, leading to its current restricting campaign, incurring marketing expenses of $1.4 billion, adding to its total expenditures. This necessary expense is expected to help AXP retain its customer base, and put AXP on the offensive within the credit market share. 

AXP suffered a severe decline in its share price in 2016 as a result of its termination agreement with Costco (COST). AXP, through its established and exclusive reward and travel agreements, has put an unprecedented carrot in front of its customer segment leading to customer retention, and an increase in customer acquisition as most of the consumers within this segment are encouraged to increase their reward points as well as using the card that offers the most value. 

AXP reported in Q4 2016 earnings-per-share (EPS) of 91¢ on revenue of $8.02 billion versus the consensus of 98¢ EPS on revenue of $7.94 billion. Its net income of $825 million or 88¢ EPS is down from $899 million or 89¢ EPS. These lower than expected results are attributable to higher marketing and promotional expenses. Specifically, the loss of its exclusive partnership with Costco Wholesale Corp.; however, AXP experienced an increase in its adjusted revenue. AXP expects its EPS for 2017 to be within the range of $5.60 to $5.80 per share versus its previous guidance of $5.60 per share on revenue of $32.04 billion. The card that made famous the slogan: “Don’t leave home without it,” may now be referring to its stock purchase price. 

Technical picture

AXP’s upward correction from its February 2016 lows ran out of gas in the fall of 2016 as it retraced back below its 50- and 200-day moving averages. Signaling a resumption of its upswing, AXP rocketed back above its 50- and 200-day moving average on Oct. 20 and continued to rally. 

Prior to the move, the 50-day moving average crossed above the 200-day, signaling bullish momentum. Since, AXP has rallied taking out various resistance levels, including a long-term trendline and is poised to make an 18-month high.