Recently, Standard & Poor's Rating Services (S&P) raised
the long-term issuer credit rating (ICR) of the operating
American Express Co.
) or AmEx to "A-" from "BBB+." Additionally, the rating agency
affirmed the ICR of the holding company at "BBB+/A-2" and the
short-term ICR of its operating subsidiaries at "A-2." The
outlook for all ratings remains stable.
The affirmation of AmEx's ratings was based on the company's
consistent revenue growth even amid the global economic downturn
and regulatory pressures. Revenue growth was driven by fee income,
which remained comparatively unaffected by asset quality.
Moreover, the company's asset quality also remained superior to
other card companies given its focus on affluent customers.
Additionally, the addition of direct-to-consumer deposits, which
S&P considers stronger than wholesale funding but weaker than
branch originated deposits, has enhanced AmEx's funding
Amex's improving customer spending trends, superior asset
quality and strong earnings resulted in the stable outlook on the
ratings despite a slow economic recovery and higher regulatory
restrictions. Moreover, S&P expects a moderate deterioration in
the company's asset quality from the current strong levels.
However, if AmEx's risk-adjusted capital ratio increases to 10%
from the current level of 7.6%, then the ratings can be revised
upward. Alternatively, if the company's profitability declines
consistently, thereby straining the capital balance, or if there
are any unfavorable regulatory, legislative or legal changes, then
a downward revision of the ratings is imminent.
The Zacks Consensus Estimate for AmEx's second-quarter 2012
earnings currently stands at $1.10 per share, up 2.5% year over
year. For 2012, earnings are expected to be about $4.34 per share,
reflecting growth of 5.3% over 2011.
AmEx primarily competes with
Discover Financial Services
). The company carries a Zacks #3 Rank, which translates into a
short-term Hold rating. We also maintain our long-term Neutral
recommendation on the stock.
AMER EXPRESS CO (AXP): Free Stock Analysis
DISCOVER FIN SV (DFS): Free Stock Analysis
MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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