Expanding its prepaid card portfolio, yesterday American Express Co. (AXP) (AmEx) announced the launch of a prepaid card for over 1000 Target stores around the US. The card was initially launched as a pilot project across 100 stores in February this year.
The new Target prepaid card can be refilled without any maintenance fees. Rather these cards are attached with benefits and are very user-friendly, while also providing a secured transaction. Moreover, funds on the cards do not have any expiry date and can be used at ATMs too.
Besides, the Target prepaid cards have two basic fees, $3 to load funds on the card and another $3 per ATM withdrawal after the first free withdrawal each month. However, there is no fee to refill any amount on the card by phone or online.
Over the past years, AmEx has been growing due to spending by affluent consumers from credit cards. However, the recent financial overhaul has caused a rapid upturn in prepaid cards, given its ease of use and low fee structure.
Additionally, the banks are now introducing new and high-charge on checking accounts, thereby impelling consumers to look out for alternate modes of payment. According to Mercator Advisory Group, consumers used funds worth $41 billion through prepaid cards in 2010, substantially up from $29 billion in 2009 and $19 billion in 2008. The escalating trend is expected to continue beyond 2011.
Hence, AmEx is also working vigorously to tap this new payment initiative in the card industry. This has also been helping the company enter into a new consumer segment – the lower and middle class – apart from the affluent ones.
AmEx has been upgrading its digital payment platform through strategic alliances, which will not only expand the company’s card membership base but also help it penetrate the unexplored market and tap the upcoming opportunities in the field of eCommerce.
Overall, these efforts are not only helping AmEx improve its delinquency rates and reducing loan losses but are also crucial for maintaining its competitive strength against arch rivals, such as MasterCard Inc. (MA), Visa Inc. (V) and Discover Financial Services (DFS), in the card industry.
Earnings Review
AmEx reported its third quarter 2011 operating earnings of $1.03 per share, comfortably ahead of the Zacks Consensus Estimate of 96 cents and 90 cents recorded in the year-ago quarter. Meanwhile, net income from operations increased 13% year over year to $1.24 billion from $1.09 billion in the year-ago period.
Besides, the Zacks Consensus Estimate for the fourth quarter 2011 is currently pegged at 98 cents per share, up about 5% over the prior-year quarter. In the last 30 days, 12 out of 16 analyst firms have raised their estimates for the upcoming quarter, while three downward revisions were witnessed. Meanwhile, for 2011, earnings are expected to escalate about 19% year over year to $4.05 per share.
Additionally, the Zacks Rank stands at #3, implying a short-term Hold and long-term Neutral’ stance.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
DISCOVER FIN SV (DFS): Free Stock Analysis Report
MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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