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American Express' Third-Quarter Earnings: Plenty to Like

By Motley Fool Staff - Oct 24, 2018 at 9:38AM

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American Express' business is growing fast, and without sacrificing asset quality.

American Express (AXP 3.58%) recently released its third-quarter earnings, and in addition to reporting double-digit growth in its consumer and commercial revenue streams, the company increased its full-year earnings expectations.

In this segment from Industry Focus: Financials, host Jason Moser and contributor Matt Frankel run down the highlights that are important to both current and prospective shareholders.

A full transcript follows the video.

This video was recorded on Oct. 22, 2018.

Jason Moser: Let's jump into American Express real quick. You took a look at the quarter there. What stood out to you?

Matt Frankel: A lot. American Express, as frequent listeners know, is the one that I'm always trying to get Jason to include in his war on cash basket. American Express is looking really good. They're taking advantage of this booming economy and consumer spending preferences. 16% year over year loan growth was what really stood out to me. They grew their revenue by 10% year over year. They grew revenue by 10%, they grew expenses by only 8%. Anytime you grow your revenue faster than you're growing expenses in banking is a really good thing.

They raised their full-year forecast, which surprised a lot of people because they're still, in a lot of minds, recovering from losing their Costco partnership, which they've now made up for and then some. Global consumer revenue was up 15% year over year. Speaking of PayPal and Venmo, along with their earnings announcement, they announced that they were entering into a partnership with PayPal and Venmo where people can pay their AmEx bills directly through the Venmo platform and send payments via AmEx through their PayPal/Venmo platforms. This should be another exciting revenue driver coming soon.

Not only this, Amex's delinquency rate and charge-off rates, which were already very low, in terms of the credit card industry, to begin with, are looking even better. So, not only are they growing loans at a double-digit rate year over year, they're doing so in what looks to be a very responsible risk management scenario.

Moser: One thing I did notice, too, was that it looks like they've updated their rewards program to become a little bit more enticing, compete a little bit more. That's what these card companies ultimately have to do, whether it's Visa or MasterCard or American Express. They need to give customers incentives to use the cards. One of the biggest incentives you can throw out there is a rewards program. I think that when you look across the spectrum there, American Express has always had a very compelling rewards program. I speak to this as a cardholder of 10 years. I don't own the stock, but I am a card holder, and I'm not going to get rid of that card, I don't think, ever. It's been a great one to have. Again, I think it always deserves an honorable mention for the war on cash basket. It was just on the outside looking in. But hey, who's to say we can't change that basket and add a little bit to it? Maybe we'll do that in 2019, Matt.

Frankel: If AmEx keeps growing like this, it'd be tough not to.

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