Get your free copy of Editor’s Digest
FT editor Roula Khalaf picks her favourite stories in this weekly newsletter.
American Express is on a roll. The credit-card group’s shares have risen 75% since late October, handily outpacing the S&P 500’s 35% gain. The company’s shares trade at 18 times forward earnings, more than double the multiples of rivals Synchrony Financial Inc. and Discover Financial Services Inc. JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp., which all have large credit-card businesses, trade at about 11 times earnings.
AmEx’s premium reflects the company’s focus on wealthy and business travelers. But even high-income consumers aren’t immune to pressure. AmEx’s charges — a measure of how much cardholders are spending on their cards — rose 5.5% year over year to $388.2 billion in the second quarter. That was weaker than expected and also a slower increase than the previous quarter.
Investors are sure to be disappointed if the stock price falls, as there have been high expectations attached to the stock. Plans to increase marketing spending by 15% this year to $6 billion have also been attracting attention. But fears are unfounded. There are still plenty of reasons to hold on to AmEx stock.
Few banks have been as aggressive in their push into the premium market as AmEx, and in recent years, it has been putting similar energy into wooing younger customers, with great success: Gen Z and millennials accounted for a third of AmEx’s U.S. consumer spending in the second quarter, growing 13% year over year, outpacing Gen X and baby boomers.
Having a younger, more affluent customer base means AmEx remains a relative refuge from the pressures faced by lower-income borrowers, who sometimes miss payments when cash is tight, while wealthier customers might forego restaurant outings or weekend trips to save money.
At American Express, the percentage of borrowers who are more than a month behind on their card payments fell to 1.2% from 1.3% in the first quarter. The cardmember loan and accounts receivable net charge-off rate remained steady at 2.1%, both figures below pre-pandemic levels. At Synchrony, the same figures were 4.5% and 6.4%, respectively, in the second quarter.
The battle for high-spending cardholders is only going to intensify. AmEx’s plans to ramp up marketing to defend its turf are easily funded by better-than-expected results. Don’t lose sight of the bigger picture just because spending growth slowed by a quarter. Don’t underestimate the purchasing power of Gen Z and Millennials.
email address
