“Don’t Leave Home Without It.” We’re Not Leaving Home.
American Express is down 40% off its10 year high of $138.13, achieved just 3 months ago. WOW!!! This is a company that got knocked hard to the ground by the Coronavirus. But will it rise back up anytime soon? Let’s take a look.
Why the sell off?
AmericanMembership Rewards® program centerpiece is Travel and Entertainment, such as generous point/miles awards for qualifying purchases, airline ticket credits, reimbursement for safe traveler program enrollment fees, high-end airport lounge access, perks connected with hotel chains, superior customer service while traveling domestically and around the globe, dining points, VIP event experiences and more. Unfortunately for the company, “T&E, which was roughly 30% of our proprietary volumes in 2019, is down almost 95%”, Chief Financial Officer Jeffrey Campbell said on Friday.
There are other glaring concerns facing American Express regarding the impact it is having on its core business. We’re looking at a world where people don’t go to work, they use Zoom and work remotely at home, This puts into question what business travel might look like in America post COVID 19, and is an area where American Express have had an upper hand vs. its competitors. Also, by American Express having a no preset spending limit, the rising rate of unemployment could force customers who made large purchases unable to pay them back. When American Express members are unable to pay back their balances in full from month to month, the company charges them large penalty fees which help the company make money. This avenue of revenue is going to be depleted due to the hit our nation’s economy is taking during the COVID 19 pandemic. On top of this, American Express, unlike Visa and MasterCard, is a lender. With small businesses getting decimated by the stay-at-home orders in place around the country, a number of loans provided to them by American Express will be hard for them to recover. This goes for personal loans as well. Finally, American Express has always forced merchants to pay a higher transaction fee for those using the credit card to pay for purchases. These merchants would accept this, feeling that the American Express customer was a more affluent one. Now, there will be less businesses willing to pay this extra fee, thus being less places accepting American Express for payment.
When looking at all of these negative circumstances that the Coronavirus has dealt American Express, I still believe in their business. Behind the scenes, American Express is shifting its current focus towards on-line shopping, food delivery, and grocery delivery. They have the money to survive COVID 19’s financial hit and will have more Rewards to offer card members after a vaccine is found. People will travel again, and will welcome back the awards American Express gave to them. There will still be the need for business travel as well. American Express is providing financial aid to its members and other people affected by COVID 19 in ways that will build a positive image for its brand and strengthen customer loyalty. They also have airline and hotel connections that our government is providing financial aid to, and once the dust settles, these companies will flourish once again, while smaller outfits may be wiped off the mat, giving them a stronger competitive edge.
Warren Buffett, the most famous value investor of our time, owns close to 19% of American Express stock, recently said in an interview. “We’re buying businesses to own for 20 or 30 years,” Buffett, who Forbes estimates has a net worth of $87.3 billion, said on CNBC. “We think the 20- and 30-year outlook is not changed by the coronavirus.
This might be your chance to buy some stocks in a strong and well-established company like American Express at prices you may never see again. Keep in mind, “Membership Has Its Privileges”.
COVID 19 and how American Express is dealing with the effects of the pandemic
Reducing Costs
Credit card issuer American Express Co (AXP) said on Friday it would cut spending by nearly $3 billion in 2020 after its quarterly profit sank 76% as it set aside more money to brace itself against a wave of potential delinquencies.
Stephen Squeri, chief executive at American Express “As we manage through this period, we’ll remain focused on what we can control in the short term while keeping an eye on the long term. In light of the current environment, we are aggressively reducing costs across the enterprise,”
The company expects operating expenses to be down about $1 billion year over year during the next three quarters and will “dramatically” reduce its marketing efforts, company executives said on a post-earnings call.
Oftentimes when a company finds ways to tighten the screws on its operations, they come out with new avenues to increase profits and production with less fat. This is what I feel is happening here because American Express is battle tested, strong and innovators. What’s best is that reduction costs do not involve any layoffs.
Helping those affected by COVID 19
Recently, American Express said it will set aside $2.6 billion to protect against potential card losses. In a company statement, they wrote, “ As you know, the situation is changing rapidly, so our approach to providing the best possible support and service to our customers is also evolving in real-time. We will work together to find a solution for each customers’ particular situation, which can include waiving late fees, return check fees, and interest charges. We have several financial hardship programs offering a range of short-term to long-term assistance”.
American Express seems to be willing to waive late fees, waive interest charges, refunding returned check fees, and reinstating forfeited rewards. The company is also working with cobrand partners and its own travel platform to extend credits, refunds and rebooking.
The company is finding other ways to give help to those impacted by the Coronavirus pandemic. On April 6, Hilton (NYSE:HLT) and American Express (NYSE:AXP) announced that the companies, in partnership with Hilton’s ownership community, will donate up to 1 million hotel room nights across the United States to frontline medical professionals leading the fight against COVID-19. American Express is also waiving the annual fees on all their personal cards, including the $550 per year AMEX Platinum, for active duty military servicemembers and spouses.
Finally, Amex was the first credit card issuer to extend the timeframe for earning a welcome bonus. If you open an American Express Card, you generally have three months to meet the minimum spending requirement to earn the welcome bonus of points or cash back. Now, you could take up to six months to meet the minimum spend if you applied for your new card between December 1, 2019 and May 31, 2020.
This is great news if you were struggling to meet a welcome bonus spending requirement in three months, or if you’ve been eyeing a card with a very high spend requirement that could be doable in six months. For example, The Business Platinum Card from American Express is offering 75,000 points to new cardholders who spend $15,000. You normally would have just three months to meet that requirement, but now you can take six months, averaging out to $2,500 in spending per month.
Brand Image, Loyal Customers, and Great Customer Service…A Recipe for Success
Acts of good faith and adding strong initiatives play a big part towards attracting an inflow of new card members. This is my belief. And American Express has done an excellent job in both of these areas. They’ve shown a tremendous amount of empathy and care towards its card members who may have fallen on hard times due to the virus, and towards those on the frontline helping to save lives. This show of altruistic acts during this pandemic is in the news. And those looking for a credit or cash card will take notice. In my mind, it gives American Express a leg up on the competition.
American Express has always been known for its customer loyalty. The average cardholder spends three times the number of other cardholders, and they are loyal — attrition rates didn’t change during the Sept. 11, 2001, terrorist attacks or the financial crisis. With their emphasis on quickly making a wrong a right, and through their outstanding customer support, their members are given a sense of trust and security which makes it a card they will hold on to forever. And the level of care the company has shown towards those who are now struggling to make ends meet during the virus will only strengthen this relationship. Although American Express has fallen on hard times, members know that this will eventually pass over and this will be their card of choice again for travel and entertainment.
American Express prides itself on giving an exceptional customer service experience. They have a highly efficient customer care team to handle the queries and complaints of their customers and to provide them with satisfactory solutions within a reasonable time frame. Customer service, in my eyes, will be key for credit or charge card companies as we continue through COVID 19 and its aftermath. Americans will be overly observant towards every dollar they spend, and more of it will be on credit or charge cards. Plus, there should be an uptick on scams and other fraudulent activity taking place with our financial purchases. I’m pretty confident that American Express will be one of the leaders in customer care, and this will go a long way towards earning the trust and overall satisfaction with the company.
A Change in direction from Travel and Entertainment to Stay at Home Rewards and Usage…Changing Today With A Promise Towards a Better Tomorrow.
The AmericanMembership Rewards program is having a makeover, keeping travel and entertainment benefits it’s known for, but now putting an emphasis on stay at home food and grocery delivery services. This is a smart move, at a time when this is where consumer spending is going, while travel and entertainment is shut down. And they are doing a fine job with this transition so far.
Amex gold card One of the most rewarding options for ordering delivery, both in terms of benefits and rewards. The Amex Gold isn’t just a pretty card. Its 4x earning rate on dining worldwide and at U.S. supermarkets makes it a strong pick for pretty much all food purchases. The $220 in annual statement credits — between the dining credit and the airline fee credit — add value, and also make the $250 annual fee easier to swallow. The welcome bonus doesn’t turn heads, but the American Express Gold Card still earns a spot as one of the best cards and can rack up plenty of points for those with appetites for dining out or dining in, travel perks and dining out for long term growth, and food delivery and shopping delivery short term growth. You’re basically getting a 6.8% return at restaurants globally and at U.S. supermarkets. This beats the Chase Sapphire Reserve when it comes to dining.
American Express has revealed that in early May they’re planning “actual product refreshes to a number of products, which will infuse additional value in addition to the value that a card may have.” This should include adding “a range of limited time offers, credits, and rewards on stay-at-home services, such as wireless, streaming, grocery, and food delivery for consumer and certain co-brand card consumers, as well as business essentials like wireless office equipment and shipping for small business consumers”.
On top of this, there are excellent travel and stay at home rewards for American Express Platinum Members. Not only does this card offer great purchase protection, but it also comes with offers that can save money or earn bonus rewards when you shop online.
For instance, when you typically see deals for saving money with travel brands like Hilton and Marriott, lately the offers on my on this card have been more geared toward life spent close to home. For example, American Express is giving you $30 back on purchases of $100 or more at Wine.com. Also, they are offering one additional point per dollar on Grubhub and Seamless food delivery purchases. Other nice perks come with their relationship with Uber, where Platinum Card Members are earning Uber Eats points. I see this relationship as being a strong long term one, as more people will be working from home, will need to sell their cars due to financial hardship, or will still be apprehensive to leave the house as a result of COVID 19, thus seeing a surge for the need of Uber and Uber Eats in everyday life once a cure is found.
Finally, American Express is a great choice when you shop on Amazon. First off, Amex Everyday Preferred cardholders earn 50% bonus points every billing period when they charge 30 or more purchases to the card. So, if you charge at least one purchase per day on the Amex Everyday Preferred Card, you’ll essentially earn at least 1.5 points per dollar spent. Next, The American Express Platinum Card offers purchase protection for up to 120 days from your date of purchase, with a maximum of $10,000 per claim and $50,000 per account per year. Finally, Amex card members receive Amex offers. These are deals for bonus points or cash back when you shop with a specific retailer. There are frequently Amex Offers for bonus points on Amazon purchases.
So as you can see, American Express has been aggressively finding ways to offer great Cash Back Rewards for the stay at home and social distancing world that we have been forced into. This should make them one of the top cards of choice for those trying to get discounts on food and grocery delivery and online shopping, which is in high demand these days. And because more and more people will be having to use credit or charge cards to make purchases due to the recession as a result of the Coronavirus, I see the direction the company is going towards current consumer spending as a way to offset the business losses in their travel and entertainment sector. Finally, once a vaccine is found and society returns back to some kind of normalcy, American Express cards are going to be more desirable, whether you love to travel and dine out, or prefer to stay in and live your lives in the comfort of your own home.
Final Thoughts
The Coronavirus has rocked the financial world, and American Express has been particularly affected because of its emphasis on travel and entertainment. Investors also believe that there will be far less people who can afford to have it in their financial portfolio. Investors see it is as popular with small businesses and business travel, both that will have a whole different reality once COVID 19 ends its path of destruction. Finally, American Express is a lender, and investors worry about the amounts of money they will fail to recoup due to the recession we’re in and will be in for sometime.
I look at these worries and I see promise, because of who American Express is as a company and what they are doing to change their brand during the Coronavirus pandemic. The company is built on trust, customer loyalty, and customer service. This will all come into play during this time of our lives, when protecting our money and our purchases will mean more than ever. Moving their emphasis away from Travel & Entertainment and into food and grocery delivery and online shopping is a smart move, one which was done as a necessity in the short term, but will add great value to the brand in the long term. People will be travelling and dining out at some point, and when this happens Amex becomes a card of choice. But now, there will be other great benefits for when they want to stay in and relax. The options for card holders to earn rewards will be wonderful, helping American Express to become a more diversified business. And who has been your typical American Express Member? One who is typically a higher earner as opposed to those you’d find owning other credit cards. So, I don’t see American Express dealing with customers who can’t pay off their charges or loans as a result of COVID 19 as I do see other card companies struggling for credit card payments because of it.
“American Express has a long runway to deliver strong, long-term performance, driven by our differentiated business model and our focus on our strategic imperatives,” said Stephen J. Squeri, Chairman and Chief Executive Officer. “We have a long track record of navigating through uncertain economic periods by focusing on our disciplined operational and strategic execution, our dedicated colleagues, and the deep relationships we have with our customers and partners. We will continue our strategy of investing in share, scale and relevance, and we are focused on running the company for the long term.”
I’m bullish on American Express, but I think it will take a patient investor to buy stock in it and see it get towards the ten-year high level we saw in January 2020. But those numbers are there, and with shares currently at a 40% discount from there, I must ask myself, “Why aren’t I buying now”?
“Blue Skies, Smiling at me, Nothing but Blue Skies, do I See”.-Willie Nelson
Disclaimer: This material should not be considered investment advice. After Further Review…The Stock is Reversed or Bob Schless are not registered investment advisors. Under no circumstances should any content from this blog, website, articles, videos, seminars or emails from After Further Review…The Stock is Reversed or Bob Schless should be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.
After Further Review...The Stock is Reversed 