Riding on a steady growth momentum, shares of American Express Co. (AXP) or AmEx hit a new 52-week high of $91.08 on Jan 2. This global electronic payment processing giant’s shares have escalated over 56% since the beginning of 2013.
Moreover, shares of AmEx have jumped 13.5% since the company reported its third-quarter 2013 results around mid-October with a positive earnings surprise of 2.5%. The encouraging momentum of this Zacks Rank #2 (Buy) stock is driven by improved card spending and operating leverage.
Yesterday’s closing price represents a strong one-year return of about 57.8% against a return of 30.6% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 3662.2K.
On Oct 16, AmEx reported third-quarter operating earnings per share of $1.25, which modestly surpassed the Zacks Consensus Estimate of $1.22 and the year-ago quarter number of $1.09.
Results reflected better pricing, higher billed business and higher-than-expected performance from the U.S. market. Improved net interest income and the loan portfolio also drove the top line, book value and operating cash flow. Growth was however, partially hindered by higher operating expenses and loan loss provisions, leading to lower return on equity (:ROE).
Going ahead, management aims to limit annual operating expenses to less than 3% in 2013 and 2014, driving over 25% of ROE and healthy capital ratios in 2013. Moreover, improved credit card trends, a spend-centric business model as well as a healthy capital position places AmEx as a sturdy player in the industry. Moreover, the company’s targeted above-average payout ratio continues to boost investors’ confidence in the stock.
Further, valuation looks quite compelling for AmEx. Both on forward price-to-earnings and price-to-book basis, the shares are trading at a premium of about 9% and 53%, respectively, to the peer group average. Moreover, return on equity of 27.5% and return on assets of 3.4% stood significantly higher than the peer group average. However, estimated long-term earnings growth is pegged at 11.4%, slightly lower than the peer group average of 12.7%.