On Dec 2, we reiterated our recommendation on
American Express Co.
) (AmEx) to Neutral based on its stable core credit card business
growth and capital strength. However, intense competition and
higher loan loss provisions augment the operational risks.
Why the Retention?
Estimates for AmEx have remained steady since the company
reported its third-quarter 2013 results on Oct 16. The company's
earnings and revenues of $1.25 per share and $8.3 billion
exceeded the Zacks Consensus Estimate of $1.11 a share and $8.22
The top and bottom line surpassed the year-ago results as
well, based on growth in card spending, improved loan portfolio
and net interest income. While expense growth remained stable,
higher provision for losses driven by lower reserve release
partially offset results.
Following the release of the third-quarter results, the Zacks
Consensus Estimate for 2013 and 2014 remained static at $4.92 per
share and $5.45 a share, respectively, in the last 30 days.
Nonetheless, on a year-over-year basis, earnings are projected to
grow 11.7% in 2013 and 10.8% in 2014.
Overall, 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).
AmEx' growth is sustained by its consistent credit quality and
consistent focus on a diversified business mix. The latest
initiatives to ramp up the travel business along with the
strategic alliances and capital adequacy also bode well for
However, intense global competition coupled with sluggish
interest rate environment and currency fluctuations deter the
desired upside in the stock. Overall though, a spend-centric
business model, healthy capital and the targeted above-average
payout ratio warrant enhanced growth for AmEx in a stable market
Other Financial Stocks That Warrant a Look
While we maintain a neutral stance on AmEx in the near term,
better-ranked stocks in the financial sector include
Old Republic International Corp.
Euronet Worldwide Inc.
FleetCor Tech Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
AMER EXPRESS CO (AXP): Free Stock Analysis
EURONET WORLDWD (EEFT): Free Stock Analysis
FLEETCOR TECH (FLT): Free Stock Analysis
OLD REP INTL (ORI): Free Stock Analysis
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