American Express reiterated its leading market position and positive 2013 growth trajectory in its Semi-Annual Financial Community Meeting on August 8.
Second quarter earnings results for the company released on July 17 were positive with earnings per share beating analysts' estimate of $1.22. Total revenue reported for the second quarter was $8.25 billion resulting in net income of $1.41 billion and earnings per share of $1.27. Cumulative first half 2013 revenue was $16.13 billion with net income of $2.69 billion and earnings per share of $2.42.
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All of the company's business segments reported year-over-year growth. In the first half of 2013 U.S. Card Services grew revenue 5% to $8.32 billion while International Card Services grew revenue 1% to $2.62 billion. Global Commercial Services revenue increased 1% from the first half of 2012 to $2.39 billion. Global Network and Merchant Services grew revenue 5% from the first of 2012 to $2.69 billion. Corporate and Other also grew 26% from $86 million in the first half of 2012 to $108 million in the first half of 2013.
The company's Enterprise Growth division has been a key market differentiator for American Express and was discussed in detail at the Semi-Annual Financial Community Meeting. Enterprise Growth contributes to the company's Corporate and Other business segment which saw a 6% increase in revenue from Q2 2012 to Q2 2013 and a 26% increase from the first half of 2012 to the first half of 2013.
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The Enterprise Growth division was developed within the company in 2010. As outlined by Dan Schulman, Group President of Enterprise Growth, it seeks to target the underbanked consumer which encompasses a large portion of the worldwide population. Through use of American Express' expansive technological platforms the Enterprise Growth product is able to provide inexpensive alternative banking solutions for consumers allowing them to save significantly on banking and bank transfer fees. American Express provides these alternative banking services through its Bluebird, Serve and Prepaid platforms. Consumers can utilize these services for traditional banking needs at relatively no charge.
Since its initial phases the Enterprise Growth product has seen strong demand. The number of customers has grown from 1 million in Q1 2012 to 5 million in July 2013. Transaction volumes have also increased from $150 million to $1.1 billion over the same timeframe.
American Express expects Enterprise Growth to be a key differentiator for the company in the credit card industry helping it to continue building on its leadership position in the sector. At the Semi-Annual Financial Community Meeting the company's Chairman and Chief Executive Officer, Kenneth Chenault, discussed the company's competitive position. Billed business of $462 billion in the first half of 2013 versus $200 billion for its closest competitor illustrated the strong leadership position American Express holds in the industry.
According to Chenault, one key trend that has become prevalent in the credit card industry has been marketing campaigns around balance transfer promotions. For example, over 90% of mail marketing campaigns introduced by Discover and Bank of America between Q3 2012 and Q2 2013 included 0.0% balance transfer offers versus 5% for American Express. While these promotions have helped credit card companies increase balances their comparable card segment net income figures still remain far below American Express which had net income of $1.37 billion in Q2 2013 versus $1.00 billion for its closest competitor.
Since 2010 American Express has focused its growth initiatives on Enterprise Growth which has helped it to grow revenue while also capturing a new market segment, the underbanked. The Enterprise Growth initiative has also helped American Express improve its brand value which is centered around trust, security and service.
The company's strong market position and positive growth trajectory have helped its stock to gain 31.35% year-to-date and 73.56% since 2010, outperforming the Dow Jones Industrial Average by 13.64% and 26.17%, respectively. With an August 9 price of $75.50 and a one-year price target1 of $68.84, American Express appears fairly valued and continues to be a leading investment for investors seeking exposure to the credit card services industry.
1 The price target is derived from Bodie, Kane and Marcus' intrinsic value formula. The intrinsic value formula discounts the stock's projected one-year future cash flow by the risk-free rate on the one-year Treasury note and includes adjustments made for specific market assumptions including the stock's beta and market risk premium.
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