American Express (NYSE: AXP) CEO Ken Chenault might have picked a good time to retire. Revenues are at his company are suddenly growing again.

Amex’s revenue hit bottom with $31.92 billion (€27.50 billion) in March, grew slightly to $31.99 billion (€27.56 billion) in June and shot up to $32.65 billion (€28.12 billion) on 30 September 2017. It’s still well below the $34.19 billion (€29.45 billion) reached in December 2014, but growing fast.

More importantly income has started to grow again; American Express reported a net income of $4.758 billion ($4.10 billion) on September 30, 2017. That’s still down from the $5.482 billion (€4.72 billion) reported in September 2016, but an improvement over the $4.544 billion (€3.91 billion) it fell to in June 2017.

Is American Express Making Money?

More importantly, American Express is still generating a lot of cash. It reported a free cash flow of $2.863 billion (€2.47 billion) on June 30, 2017; a tremendous improvement over the $324 million (€279.09 million) from June 2016.

There were also $26.17 billion (€22.54 billion) in cash and short-term investments on September 30, 2017 and $168.58 billion (€145.21 billion) in assets on September 30, 2017. That was a new record easily exceeding the $153.38 billion (€132.12 billion) reported in September 2016.

The assets are what make Amex a tremendous value for the $95.79 (€82.51) share price reported on 27 October 2017. This company packs in a lot of value yet still manages to generate a lot of cash.

In addition to the net income, there was $11.85 billion (€10.21 billion) in cash from operations and $6.369 billion (€5.49 billion) in cash from financing on 30 September 2017. That makes American Express doubly valuable because it packs a lot of value and generates a lot of cash.

The $83.15 billion (€71.62 billion) market capitalization and $105.46 billion (€90.84 billion) enterprise value from 27 October 2017 are also an underestimate. If you are looking for the value in the credit card area, Amex is quite probably it.

Investors will also enjoy the AXP dividend of 35¢ (€0.30) from October 5, which was up from 32¢ (€0.28) in July and a 22.74% return on equity. As a long term investment Amex is still a winner.

Why is American Express growing Again?

There is a reason why simple reason why American Express is still growing again. Basic credit card services are still a great product for which there is tremendous demand.

For all its’ faults, American Express still does a great job of delivering those services. More importantly has a highly recognized brand that is still the company’s biggest assets.

Chenault’s biggest accomplishment at Amex was to commoditize the brand and successfully market it to corporate customers. His co-branding deals, particularly with Costco Wholesale (NASDAQ: COST) became the new standard practice in the credit-card industry.

American Express’s Image is its Most Valuable Asset and Greatest Liability

His team also figured out how to successfully market American Express to the working and middle-classes. For example by harnessing new technologies such as Apple Pay and marketing heavily to small business owners.

The company’s also managed to keep its core affluent customers. Strangely enough, one way this was achieved was by maintaining Amex’s conservative and stodgy image.

That image has proved a double-edged sword because it turns off the younger Millennial and Generation-X customers American Express needs for the future. Finding ways to connect with those consumers is going to be the biggest home-market challenge for the next CEO Stephen J Squeri.

American Express’s Biggest Challenge Expanding outside the United States

Although marketing to Millennials will not be job one for Amex. That will be expansion outside the United States, particularly in growing markets such as China and India.

India in particular offers a huge opportunity for Amex with its growing middle class, which has been estimated at up to 600 million people. A powerful ally American Express will have in India is Prime Minister Narenda Modi who is determined to force digitalization of the nation’s economy.

Last year Modi tried to discourage the use of cash by declaring India’s two largest banknotes worthless. The country’s central bank; The Reserve Bank of India, has organized a National Payments Corporation of India and created a technological standard called Unified Payments Interface (UPI) to encourage digital payment.

A high-profile user of UPI is Alphabet (NASDAQ: GOOG); or Google, which is it as the basis of the Tez digital wallet. Since the National Payments Corporation is willing to work with American companies Amex should consider launching a digital solution that uses UPI.

Another way American Express can attract business outside the U.S. would be to adopt cryptocurrencies. The best way to do this would be government mandated cryptocurrencies, such as that proposed by the People’s Bank of China. An intriguing possibility would be to create an AMEX Ethereum solution and make it available to smaller nations’ governments and national banks.

Three Big Opportunities for American Express at Home

There are also three big opportunities for American Express here in the USA, that would greatly increase its’ profile among Millennials and Generation X.

The first of these opportunities is Amazon (NASDAQ: AMZN), the company should create an American Express card for Amazon Prime users. That card would be similar to the ones formerly issued to Costco members, and currently offered to Sam’s Club members.

Prime is a huge opportunity for Amex because Statista estimated that it had 90 million members in the United States in September 2017. Prime is also growing like crazy it had 65 million members in June 2016, 80 million in March 2017, and 85 million in June 2017. A great opportunity here would be an Amex card that offers a Prime membership as a benefit.

Beyond Prime there is the possibility of Amazon-branded cards for Overstock (NASDAQ: OTSK), Netflix (NASDAQ: NFLX) and (NYSE: WMT) users. A strong possibility here would be cards that give customers points they can use toward videos from Amazon or Netflix, or discounts on merchandise orders.

The third big opportunity in the United States is PayPal (NYSE: PYPL) and its Venmo Peer to Peer (P2) payments solution. Since there are already PayPal MasterCards and plans for a Venmo Visa (NYSE: V) – why not issue a Venmo American Express Card or a PayPal Amex product?

An American Express card that comes with a Venmo or PayPal account is another natural progression. A final solution that Amex should consider is accounts that are automatically integrated with Android Pay, Tez, Ant Financial’s Alipay, or Apple Pay. This would be quite appealing to Millennial and Generation X users are obsessed with smartphones.

Something has to be done because Millennials (born 1981 to 1997) are now America’s largest generation with 75.4 million members, Pew Research and the Census Bureau estimated. There are also around 65.8 million Generation Xers (born 1965 to 1980). These two groups make up the largest segment of the U.S. population and the bulk of American consumers.

American Express has a bright future with many opportunities. That makes it a great long term buy and hold stock with a lot of cash.

This article initially appeared at Market Mad House in slightly different form.


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