American Express Co. (AXP): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


American Express' fourth-quarter earnings beat the Zacks Consensus Estimate, aided by higher loan balances, spending on cards, primarily from the U.S., partly offset by higher-than-expected operating, restructuring and tax expenses, and higher loan loss provisions. Improvements were witnessed in ROE, capital ratios and book value. The possibility of below long-term average growth in 2015 due to rise in expenses, loan loss provisions, foreign currency fluctuation and pressured discount rate in Europe raise concerns. Absence of Costco client in Canada may also hamper billings this year. Low interest rates are also hurting returns from investment securities, loan fee income and bank deposits, thereby restricting top-line growth. Yet, a spend-centric business model, improved credit profile, new business initiatives, capital flexibility and healthy capital paves the way for an above-average payout ratio. We retain our Neutral recommendation.


Founded in 1850, New York-based American Express Company is a diversified financial services company, with worldwide operations and a strong brand name. It is a significant player in charge and credit payment card products, and travel-related services worldwide. The company is primarily organized into two groups, the Global Consumer Group and the Global Business-to-Business Group.

American Express sells its products and services to various customer groups including consumers, small businesses, middle-market companies, large corporations and banking and financial institutions through various channels such as direct mail, online applications, sales forces and direct response advertising.

Considering a combination of factors, the company primarily operates through five reportable segments:

U.S. Card Services (USCS): This segment is aligned within the Global Consumer Group and issues a wide range of card products and services to consumers and small businesses in the U.S. Additionally, it provides consumer travel services to card-members and other consumers.

International Card Services (ICS): This segment is also aligned within the Global Consumer Group and issues proprietary consumer and small business cards outside the U.S.

Global Commercial Services (GCS): This segment is aligned within the Global Business-to-Business Group and offers global corporate payment as well as travel-related products and services to large and mid-sized companies.

Global Network & Merchant Services (GNMS): This segment is also aligned within the Global Business-to-Business Group. The segment operates a global general-purpose charge and credit card network, which includes both proprietary cards and cards issued under network partnership agreements. It also manages merchant services globally, which includes signing merchants to accept cards as well as processing and settling card transactions for them. Further, this segment offers merchants point-of-sale products, servicing and settlements and marketing programs.

Corporate & Other: This segment consists of corporate functions and supplementary businesses. The corporate functions include the company's publishing business, Travelers Checks and other prepaid products. The Enterprise Growth Group (EGG) program is also reported under this segment.

During the fourth quarter of 2008, American Express became a bank holding company under the Bank Holding Company Act of 1956. Since then, the Federal Reserve Board has been the company's primary regulator. As of Dec 31, 2013, American Express had 62,800 employees.

On Mar 26, 2014, the company's comprehensive capital plan (CCP) was approved by the Federal Reserve, which enables it to increase share repurchases and dividend payouts.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: AXP

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