On May 30, we reiterated our recommendation on American Express Co. (AXP) (AmEx) to Neutral based on its stable billed business trends and capital flexibility, which augur sustained growth in the future. However, higher loan loss provisions and lower ROE increase the operational risks.
Why the Retention?
Estimates for AmEx have remained steady since the company reported its first-quarter 2013 results on Apr 17. The company’s earnings of $1.15 per share exceeded the Zacks Consensus Estimate of $1.11, although revenues of $7.88 billion lagged the same benchmark by 1.4%.
However, both top and bottom line surpassed the year-ago results, based on growth in card spending, improved loan portfolio and strict expense control, which were partially offset by escalated provision for losses and tax rate.
Following the release of the first-quarter results, the Zacks Consensus Estimate for 2013 edged up 0.8% to $4.79 per share in the last 60 days. However, the Zacks Consensus Estimate for 2014 inched down 0.4% to $5.33 a share. 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).
While intense global competition coupled with sluggish interest rate environment and currency fluctuations deter the desired upside in the stock, AmEx’s growth is sustained by its consistent credit quality and consistent focus on a diversified business mix.
Strong alliances and acquisitions also bode well for long-term growth. Moreover, the recent 15% hike in dividends and accelerated share buybacks reflect superior liquidity and raises investor confidence.
Other Financial Stocks That Warrant a Look
While we maintain a neutral stance on AmEx in the near term, other stocks in the financial sector that are outperforming include CBOE Holdings Inc. (CBOE), XL Group Plc (XL) and Fleetcor Tech Inc. (FLT). All these stocks carry a Zacks Rank #1 (Strong Buy).
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