Riding on a steady growth momentum following impressive 2013
results, the shares of
American Express Co.
), or AmEx, reached its all-time high of $93.62 on Jan 17. This
global payment processor's shares has risen about 57% alone since
the beginning of 2013.
The improved momentum of this Zacks Rank #2 (Buy) stock is
driven by strong credit indicators coupled with efficient expense
control. AmEx delivered positive earnings surprise in 3 of the
last 4 quarters with an average beat of 2.6%.
Friday's closing price represents a strong one-year return of
about 52.2% and a year-to-date return of about 0.3%. On both
these grounds, the company outperformed the S&P 500 index of
23.7% and -0.5%, respectively. Average volume of shares traded
over the last three months stands at approximately 3,715.9K.
On Jan 16, AmEx reported fourth-quarter 2013 operating
earnings per share of $1.25, a penny lower than the Zacks
Consensus Estimate. The results, however, outpaced the prior-year
quarter figure of 56 cents per share. Shares rose 3.6% post the
announcement of the results.
Results reflected about 5% growth in total revenue against 8%
decline in total expenses. Higherinterest income, driven by
improved card spending, and lower loss provisions shored up the
return on equity (ROE) and book value per share.
AmEx expects to keep its expense growth controlled below 3% in
2014 as well. The company's spend-centric business model, healthy
capital and the targeted above-average payout ratio warrant
enhanced growth over time.AmEx has also filed its comprehensive
capital plan (CCP) with the Federal Reserve. A final approval is
scheduled for Mar 2014.
Although financial damages related to litigations and
regulations raise caution, we believe improved credit trends, new
business initiatives, capital flexibility and stable ratings bode
well for AmEx' growth.
Further, valuation looks compelling for AmEx stock. Both on
forward price-to-earnings and price-to-book basis, the shares are
trading at a premium of about 17% and 55%, respectively, to the
peer group average.
Moreover, both return on equity and return on assets of 28.0%
and 3.5%, respectively, stand well above the peer group average.
Estimated long-term earnings growth is pegged at 11.5%,
marginally lower than the peer group average of 12.7%.
Meanwhile, some better-ranked financial stocks include
Fidelity National Information Services Inc.
Portfolio Recovery Associates Inc.
Heartland Payment Systems Inc.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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