American Express Is Facing Tough Competition as Stock Gains

Shares of credit card giant American Express Company (NYSE:AXP) were up 1.08% close to the noon hour on September 19. The company has seen new traction since being displaced by Citigroup Inc (NYSE:C) as the second largest issuers of credit cards in the United States in 2016. It ultimately lost out distribution of Costco Wholesale Corporation cards to Citigroup and Visa Inc (NYSE:V).

American Express released its second quarter results on July 19. Net income was down 33% to $1.3 billion but CEO Kenneth Chenault was mostly positive in the conference call. He said that American Express was moving away from co-brand relationships for economic reasons and was focusing on internal improvement to business and operating expenses.

The company has managed to outpace Citigroup in 2017 in spite of the bad news in 2016. Visa stock has outperformed both, climbing 35% this year as it has demonstrated top notch financials. However, American Express still offers a dividend of $0.32 per share representing a dividend yield of 1.4%. The company was able to hike its dividend after passing a Federal Reserve stress test this year.

As we move toward the company reporting its third quarter results investors should be extremely cautious. Total American credit card debt could surpass $1 trillion by 2018 and the second quarter of 2017 saw the largest increase since 2008. Central banks are committed to gradual tightening which should provide significant tests for this massive credit cycle.