On Mar 27, 2013, shares of American Express Company (AXP) hit a 52-week high of $67.26. The momentum was driven by the approval of the company’s capital plan in its second attempt earlier this month. The first capital plan was rejected in January as it was adversely impacting the company’s capital ratios.
On Mar 14, American Express announced that the Federal Reserve approved the company’s capital plan for the next one year. The regulatory body gave consent to hike American Express’ dividend by 15% to 23 cents per share from the second quarter of 2013 and buyback shares worth $3.2 billion in the last three quarters of 2013 and another $1.0 billion in the first quarter of 2014.
Following the approval, American Express authorized a new share buyback program for 150 million shares, replacing the earlier repurchase program, which had 70 million shares available for buyback.
Apart from the capital plan, American Express’ strong earnings in the fourth quarter of 2012 also contributed to the momentum in share price. On Jan 17, 2013, the company reported its fourth-quarter 2012 operating earnings per share of $1.09, which was in line with the Zacks Consensus Estimate but climbed from $1.01 in the year-ago quarter.
American Express witnessed positive earnings surprise in 2 out of 4 quarters of 2012, with an average surprise of 5.78%. Moreover, the company reported positive earnings surprise in 8 out of the past 10 quarters.
The valuation of American Express looks attractive. The shares are trading at a discount on a price-to-book and forward price-to-earnings basis, while the return on equity of 26% is significantly higher than the peer group average of 6.7%.
American Express currently carries a Zacks Rank #3 (Hold). Some companies worth considering in the financial sector are Euronet Worldwide Inc. (EEFT), SS&C Technologies Holdings, Inc. (SSNC) and Moody's Corp. (MCO). All these companies carry a Zacks Rank #1 (Strong Buy).
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