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What Awaits AmEx (AXP) Stock After Hitting a 52-Week High?

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The stock of American Express Co. (AXP - Free Report) hit a 52-week high of $167.14 before settling at $166.51. This share price rally is likely to have been driven by an improving consumer spending and travel recovery, which will spur the usage of AmEx credit cards. This will eventually bolster its revenues.

Over a year’s time, the stock has gained 56% compared with its industry’s average of 2.65%.

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Other stocks in same space including Visa Inc. (V - Free Report) , Mastercard Inc. (MA - Free Report) and Discover Financial Services (DFS - Free Report) have also jumped 16.2%, 16.6% and 124.8%, respectively, over the same time frame.

What’s the Case Ahead for American Express?

AmEx looks set for growth in 2021 after a not-so-good 2020, which was affected by the COVID-19 pandemic. A decline in overall spending put the company’s revenues under pressure.

However, things are looking up now as a large chunk of AmEx cards catering to small businesses, which are recovering, will ultimately aid the company’s revenues. Moreover, it targets premium consumers who have the propensity to spend about three times more than that of rival networks.  

The company is experiencing progress in four strategic areas, such as pending volumes returning to the pre-pandemic levels, customer additions, retention of current customers and growth in merchants.

The green shoots started appearing in the first quarter when the company confirmed that the overall spending on AmEx cards improved sequentially from the last two quarters of 2020.

Particularly, its business that caters to U.S. consumers, and small and medium-sized enterprises, did better than other businesses and also surpassed the March 2019 levels. It should be noted that bulk of AmEx customers represents small businesses.

At the start of this year, AmEx had made new offers for U.S. consumers, small businesses, cobrand card members and small merchants.  These are going to pay off now in terms of business volume expansion.

The company’s non-U.S. volume, which lagged a bit due to renewed lockdowns in certain countries, is likely to pick up soon. A steady sequential uptrend in monthly travel and entertainment spending and a noticeable improvement in the United States with the acceleration in vaccine rollout are its key tailwinds.

Pent-up demand for travel is already being felt and will further gather momentum as the fear of coronavirus recedes. AmEx’s The Platinum Travel Credit Card provides an array of unbeatable luxury travel experiences to attract travelers. The company also rolled out an exciting bunch of offers pertaining to hotels, flights and car rentals at the onset of 2021 to lure customers to use its travel cards: Thus, the usage of these cards now as travel demand unfolds will boost spending on AmEx cards.

Financial Strength: A Boon

The cherry on the cake is the company’s solid financial standing and flexibility. It resumed share repurchases in the first quarter and maintained capital ratios well above the targets. Recently, it paid out its dividend, keeping alive its consistency as a dividend payer. The tradition is sure to continue as the company’s cash flow is stable and its debt, manageable.

Final Thoughts

This stock will continue with its flight since there are no imminent hurdles. Improving economy, favorable consumer sentiments and a strong ground work for long-term growth will be its constant key levers. Over the past 30 days, the stock has seen 2021 earnings estimate being revised 1.1% upward to $7.43 per share.

AmEx carries a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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