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Analyst Blog

On Dec 2, we reiterated our recommendation on American Express Co. (AmEx) to Neutral based on its stable core credit card business growth and capital strength. However, intense competition and higher loan loss provisions augment the operational risks.

Why the Retention?

Estimates for AmEx have remained steady since the company reported its third-quarter 2013 results on Oct 16. The company’s earnings and revenues of $1.25 per share and $8.3 billion exceeded the Zacks Consensus Estimate of $1.11 a share and $8.22 billion.

The top and bottom line surpassed the year-ago results as well, based on growth in card spending, improved loan portfolio and net interest income. While expense growth remained stable, higher provision for losses driven by lower reserve release partially offset results.

Following the release of the third-quarter results, the Zacks Consensus Estimate for 2013 and 2014 remained static at $4.92 per share and $5.45 a share, respectively, in the last 30 days. Nonetheless, on a year-over-year basis, earnings are projected to grow 11.7% in 2013 and 10.8% in 2014.

Overall, 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).

AmEx’ growth is sustained by its consistent credit quality and consistent focus on a diversified business mix. The latest initiatives to ramp up the travel business along with the strategic alliances and capital adequacy also bode well for long-term growth.

However, intense global competition coupled with sluggish interest rate environment and currency fluctuations deter the desired upside in the stock. Overall though, a spend-centric business model, healthy capital and the targeted above-average payout ratio warrant enhanced growth for AmEx in a stable market over time.

Other Financial Stocks That Warrant a Look

While we maintain a neutral stance on AmEx in the near term, better-ranked stocks in the financial sector include Old Republic International Corp. , Euronet Worldwide Inc. and FleetCor Tech Inc. . All these stocks sport a Zacks Rank #1 (Strong Buy).

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