This Company Is Set to Soar as Customers Start Spending Again

Consumers may be wary of inflation. But it looks like they're gearing up to spend freely...

Last week, the Conference Board released its monthly Consumer Confidence Index for January. This month, the Consumer Confidence Index fell to 113.8 from 115.2 in December. Despite the decline, the index came in above the Wall Street estimate of 111.

January's fall marked the first decline in consumer confidence since September 2021. The index now sits well below its recent peak around 128 from last June, which saw a boost from the optimism around the economic reopening.

The Conference Board said the decline was due to a drop-off in consumer expectations for economic growth over the next six months. It reported 23.8% of survey respondents said that economic conditions will improve, down from 25.4% in the previous month.

And inflation concerns remain high, despite easing in the past two months.

But the release wasn't all bad...

Of the survey respondents, 21.1% said that economic conditions were "good" – up from 19.4% in the previous month. And 55% of respondents (a historically elevated level) said that jobs were "plentiful" in today's economy.

Lynn Franco, senior director of economic indicators at the Conference Board, said consumers are looking to spend. Specifically, the number of people planning to buy homes, cars, and major appliances over the next six months increased.

So folks are getting ready to open up their wallets even more. And that's great news for today's company...

American Express (AXP) is a household name in the credit-card industry.

More than 110 million American Express cards are in use around the world, with cardholders racking up more than $1 trillion in charges every single year. The company also collects nearly $3 billion per year in annual dues from its customers simply for the right to carry an "Amex" card.

Unlike other credit-card issuers, American Express uses a "closed loop" business model...

This means that it charges a processing fee to merchants who accept American Express cards (like its competitors Visa and Mastercard do).

But it also collects interest on late payments like banks (payment-network competitors Visa and Mastercard don't receive these late payments). And it gets to charge its cardholders membership fees. This gives American Express three ways to profit off its cards, not just one.

Put simply, American Express thrives when consumers are spending freely. And the company's recent quarter showed folks are opening up their wallets right now as much as ever...

American Express reported earnings per share ("EPS") of $2.18 compared with the $1.86 estimate. Revenue for the quarter was $12.15 billion, beating the expectation of $11.54 billion. That represents 30% revenue growth from the same period in 2020.

CEO Stephen Squeri said strong consumer spending was one key reason for the surge in revenue growth. Ever since the pandemic hit, consumer spending has been in recovery mode. But now, it looks like it's getting back to normal... and then some.

Squeri said that cardmember spending hit a record high in the fourth quarter. Total network volumes rose 23% in 2021, and even came in 1% above 2019 levels.

Importantly, AXP has even seen a strong rebound in travel & entertainment (T&E) spending, which came in 8% above 2019 levels for consumers.

T&E spending was the area that was hit hardest during the pandemic – falling more than 80%. This segment – which includes things like vacations, flights, and hotels – has been slow to get back to normal. Even as the economy has reopened, new COVID-19 variants have kept reluctant consumers away from T&E expenses.

But this recent data may show that the tide has turned for the better...

Overall T&E spending is still down about 18% from 2019 levels, but the weakness is in business T&E spending, not consumers. (Business T&E spending is still recovering, just at a slower pace than consumers.)

And the company expects the consumer strength to continue. American Express expects revenue growth of 18% to 20% in 2022, well above the Wall Street estimate of 13.1%.

The strong report sent American Express shares soaring last week. The stock jumped nearly 9% on the day of the earnings report. What's even more impressive is that broader markets did not fare so well – the S&P 500 Index fell more than 1% on the same day.

That just added on to AXP shares' recent outperformance. Over the past 12 months, the stock has returned about 51%. The S&P 500 has "only" risen about 17% in that same time frame.

American Express' recent quarter shows that people are out and opening their wallets again. And it's perfectly positioned to benefit as spending – especially T&E spending – comes roaring back. That should continue to push shares higher.

Sometimes investing is simple.