New American Express Price Target After $3,500 Platinum Card Refresh

When it comes to the Portfolio’s position in American Express AXP, we’ve been vocal about the catalyst we’ve been waiting for: the much-anticipated Platinum card refresh.

The waiting is over, and Amex has shared that as it increases the annual membership fee to $895 from $695, it is packing on the perks. Across existing dining, hotel and other travel benefits that included a hotel credit (upped to $600 from the prior $200), $200 Uber UBER cash, $120 credit for Uber One membership and a $200 airline credit, the company added several new ones. These additions include a $200 credit with Oura Ring, a $300 credit with Lululemon LULU and a $400 per year credit with Resy.

In full, if one were to partake in all of Amex’s Platinum card benefits (including my personal favorite, the $300 digital entertainment credit), the tally would be $3,500. To entice new members, Amex is also offering up to 175,000 membership reward points that can be used in myriad ways.

When we first added AXP shares to the Portfolio, we discussed the power of the membership business model. In our view, the Platinum refresh speaks to that, but as investors, it also reminds us of Amex’s differentiated business model. For newer members, that differentiated business model is Amex, deriving 70% of its pretax income from net card fees. Those net card fees are tied to the number of cards enforced and the average fee per card.

We’ve seen a steady increase in both the number of cards in force and the average fee per card, which implies stronger premium card growth. That includes Amex’s Platinum cards, and in our view, the $200 increase is more than offset by the incremental benefits. We see that helping continue the trend of card and card fee growth in the coming quarters.

Let’s remember that just like we have seen at Costco COST, the impact of this card refresh will be a phased-in one as membership renewals over the coming quarters. To us, this means we should see a step function higher in card fee growth and EPS. With that in mind, for now, we will increase our AXP price target to $370 from $340.

As we see the average card fee tick higher, we will review our price target and our current Two rating as needed, especially if the number of cards in force grows faster than expected. Given the value to members we see even after the announced Platinum fee increase, we would not be surprised if it happens.

We’ll also boost our panic point on AXP shares to $295 from $275, and as we have done in the past, as the shares move higher, we’ll revisit that level as well.

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At the time of publication, TheStreet Pro Portfolio was long AXP and COST.