On May 30, we reiterated our recommendation on
American Express Co.
) (AmEx) to Neutral based on its stable billed business trends
and capital flexibility, which augur sustained growth in the
future. However, higher loan loss provisions and lower ROE
increase the operational risks.
Why the Retention?
Estimates for AmEx have remained steady since the company
reported its first-quarter 2013 results on Apr 17. The company's
earnings of $1.15 per share exceeded the Zacks Consensus Estimate
of $1.11, although revenues of $7.88 billion lagged the same
benchmark by 1.4%.
However, both top and bottom line surpassed the year-ago
results, based on growth in card spending, improved loan
portfolio and strict expense control, which were partially offset
by escalated provision for losses and tax rate.
Following the release of the first-quarter results, the Zacks
Consensus Estimate for 2013 edged up 0.8% to $4.79 per share in
the last 60 days. However, the Zacks Consensus Estimate for 2014
inched down 0.4% to $5.33 a share. With the Zacks Consensus
Estimate for both 2013 and 2014 showing no clear directional
pressure on the stock in the near term, the company now has a
Zacks Rank #3 (Hold).
While intense global competition coupled with sluggish
interest rate environment and currency fluctuations deter the
desired upside in the stock, AmEx's growth is sustained by its
consistent credit quality and consistent focus on a diversified
Strong alliances and acquisitions also bode well for long-term
growth. Moreover, the recent 15% hike in dividends and
accelerated share buybacks reflect superior liquidity and raises
Other Financial Stocks That Warrant a Look
While we maintain a neutral stance on AmEx in the near term,
other stocks in the financial sector that are outperforming
CBOE Holdings Inc.
XL Group Plc
Fleetcor Tech Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
AMER EXPRESS CO (AXP): Free Stock Analysis
CBOE HOLDINGS (CBOE): Free Stock Analysis
FLEETCOR TECH (FLT): Free Stock Analysis
XL GROUP PLC (XL): Free Stock Analysis Report
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