On Feb 27, we reiterated our recommendation on
American Express Co.
) (AmEx) to Neutral, based on its steady growth momentum and
prudent capital management that augurs higher shareholder return.
However, higher provision for losses and higher marketing
expenses raise some concern.
Why the retention?
Estimates for AmEx, which focuses on financial card services,
have remained steady since the company reported its
fourth-quarter 2012 results on Jan 17. The company's earnings of
$1.09 per share were at par with the Zacks Consensus Estimate,
although revenue of $8.14 billion marginally exceeded the same
Meanwhile, both top and bottom line surpassed the year-ago
results, based on growth in card spending and improved loan
portfolio, which were partially offset by escalated expenses and
provision for losses.
Following the release of the fourth-quarter results, the Zacks
Consensus Estimate for 2013 remained consistent at $4.75 per
share in the last 30 days. However, the Zacks Consensus Estimate
for 2014 edged up 0.9% to $5.33 a share. With the Zacks Consensus
Estimates 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).
AmEx has been experiencing impressive recovery in credit
trends, with increased card spending and strong billings over the
last several quarters. Moreover, the company continues to focus
on tapping rapidly developing international markets through
strategic acquisitions and alliances along with development of
products and technological services, which are also becoming a
source of a diversified revenue mix.
Further, persistent improvement in loss rate continues to
reflect progress from improved credit quality. However, we expect
the recovery to be tempered by the volatile global economy,
sluggish interest yields, higher marketing and other cardmember
reward expenses as well as intense competition faced in the card
Other Financial Stocks That Warrant a Look
While we see no clear directional pressure on American Express
in the near term, other stocks in the financial sector that are
XL Group Plc
Navigators Group Inc.
). All of these carry a Zacks Rank #1 (Strong Buy).
AMER EXPRESS CO (AXP): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
NAVIGATORS GRP (NAVG): Free Stock Analysis
XL GROUP PLC (XL): Free Stock Analysis Report
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