The American Express report is updated for yesterday’s earnings release. It is no rated Speculative Buy as opposed to the previous Weak Buy/ Hold. Based on the Q2 report it appears to me that AMEX expects adjusted earnings to rise about 15% in 2017 despite the loss of the Costco business. However, the adjusted earnings figure was not directly provided and so it is not entirely clear what growth the company is expecting. But they do appear to be confident about growth and that combined with the relatively low valuation should make this a good investment going forward.
As a side point, it is certainly unfortunate that the Costco business was lost. I believe the Costco co-brand was a LOT more valuable to AMEX than it is to VISA. That’s because a typical Costco member probably already has a Visa card and so is not a new card holder for VISA. They CAN be attracted to the Citi bank VISA co-brand but only with a very generous reward level. I believe Citi has paid dearly to get the Costco business. In theory AMEX should have been able to out bid Citi. But when a competitor bids an irrationally large amount to get the business it may be wise to let them have that business. A lot of Costco spending is likely to go to non-Citi Bank VISA cards. Citi Bank may have struck a deal with Costco that will primarily benefit other VISA card issuers. All VISA card will likely earn only a small discount rate at Costco. But for non-Citi bank VISA cards it likely comes as incremental revenue at no added cost. For Citi-Bank Costco branded cards it comes as added revenue at Costco and spending outside of Costco but comes at significant cost in terms of rewards to customers. In the case of AMEX many Costco customers were not AMEX cardholders and HAD to become AMEX cardholders in order to use a credit card at Costco. But Costco customers who already have a VISA card can just use that rather than switch to the Citi Bank version.