On May 21, 2013, shares of American Express Co. (AXP - Analyst Report), also known as AmEx, hit a 52-week high of $75.11. The company reported first-quarter results with a positive earnings surprise of 3.6%. AmEx delivered positive earnings surprise in all of the last 4 quarters with an average beat of 4.1%.
On Apr 18, AmEx reported its first-quarter 2013 operating earnings per share of $1.15. The result comfortably surpassed the Zacks Consensus Estimate of $1.11 and the year-ago quarter earnings of $1.07 a share.
Results reflected improved global card spending, net interest income and the loan portfolio. Further, delinquency rates and yield exhibited stability, partially offset by lower lending balances. Further, moderate top-line growth was supported by strict expense control, which helped the overall increase in bottom line, book value per share and effective capital deployment.
Subsequently, AmEx repurchased shares worth $802.5 million in the first quarter of 2013 as it successfully attained the approval from the Federal Reserve to buy back shares worth $3.2 billion in 2013. Another $1.0 billion worth of share repurchase can be initiated in the first quarter of 2014.
We believe that improved credit trends, new business initiatives, capital flexibility and stable ratings bode well for long-term growth, which is reflected by the consistent dividend hike and accelerated share buybacks.
The company returned 70% of its capital generated, in the first quarter of 2013, to shareholders via share buybacks and dividend payouts. On a cumulative basis, AmEx has distributed 66% of capital generated through dividends and share buybacks since its inception in Dec 1994. This injects ample confidence among the shareholders.
Meanwhile, valuation looks reasonable for AmEx. The shares are trading at 5.2% premium to the peer group average on a forward price-to-earnings basis and 193.8% premium to the peer group average on a price-to-book basis. Both return on equity and return on assets are 306% and 154%, respectively, above the peer group average. Nevertheless, the 1-year return from the stock is 35.6%, much above S&P 500’s return of 28.9%. The overall long-term expected earnings growth rate for this stock is 10.9%, which is slightly below the peer group.
AmEx currently carries a Zacks Rank #3 (Hold). Among others in the industry, Moody’s Corp. (MCO - Analyst Report), EuronetWorlwide Inc. (EEFT - Snapshot Report) and SS&C TechnologiesHoldings Inc. (SSNC - Snapshot Report) carry a favorable Zacks Rank #2 (Buy) and warrant attention.