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Why Hold Strategy is Apt for American Express Right Now

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American Express Company (AXP - Free Report) is well-poised for growth on the back of its solid international business and a rising topline.

Over the past 30 days, the company’s earnings estimates for 2019 have been revised 0.2% upward, reflecting analysts' optimism on the stock.

The company flaunts a stellar earnings surprise history, having outpaced the Zacks Consensus Estimate in all the trailing four quarters, the average being 2.9%. This trend of consecutive estimate beats underscores the company’s operational efficiency.

Its return on equity — a profitability measure — stands at 30.3%, above the industry’s average of 20.2%.

Shares of this Zacks Rank #3 (Hold) company have rallied 23.7% in a year’s time against the industry’s decline of 6.7%.

American Express’ topline has been growing since 2016, led by a number of growth initiatives, such as the rollout of new products, enhancement of features on the existing line-up and changes in pricing. The company is expected to witness an inflated revenue base on the back of its digital transformation, a strong economy, steady efforts toward building business in the new growth verticals. For 2019, revenue growth is anticipated in the range of 8-10%.

Notably, the company’s international business remains attractive owing to the OptBlue program, which is driving merchant acceptance globally. Management perceives regions like Japan, the United Kingdom, Mexico, India and China as attractive business destinations. In China, the company has received a preparatory approval for the clearing and settlement license and also set up a joint venture to develop its payment network.
American Express’ entry into the growing Chinese payments markets opens alucrative business opportunity.  Management sees these prospects to gain a generous market share in Europe pertaining to its proprietary business. The international markets remain underpenetrated and provide an ample growth scope for the company.

The company has been making constant efforts to stay abreast with the rapid technological changes taking place in the payments industry. The acquisition of companies, namely Mezi and Cake, specializing in niche technology and Artificial intelligence capabilities are noteworthy. Also, American Expressstrikes partnership deals with Amazon and PayPal. These will help expand the company’s reach in digital payments, poising it well for growth.

However, the company has been witnessing an escalated marketing and business development expensedue to higher spending on growth initiatives including new card acquisition, global brand campaign, consistent investments in cobrand partnerships and increased corporate client incentives. This might weigh on margin expansion.

Nonetheless, the Zacks Consensus Estimate for current-year earnings per share is pegged at $8.17 on revenues of $43.9 billion, reflecting a rise of 11.5% and 8.9%, each. For 2020, the Zacks Consensus Estimate for earnings stands at $8.97 on $46.7 billion revenues, translating into respective 9.8% and 6.5% year-over-year growth. The company’s long-term growth rate stands at 10.5%, up from its industry's growth rate of 9.8%. This is visibly an upside for the company.

Stocks to Consider

Investors interested in the finance sector can look into some better-ranked stocks like Virtu Financial, Inc. (VIRT - Free Report) , Fidelity National Information Services, Inc. (FIS - Free Report) and Euronet Worldwide, Inc. (EEFT - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.

Virtu Financial provides market making and liquidity services to the financial markets around the globe. The company carries a Zacks Rank #2 (Buy) and came up with average trailing four-quarter positive surprise of 0.63%.

Fidelity National Information works as a financial services technology company worldwide. It sports a Zacks Rank #1 (Strong Buy). The company managed to deliver an earningssurprise in all the previous four quarters, the average being 2.72%.

Euronet provides payment and transaction processing plusdistribution solutions worldwide. It carries a Zacks Rank of 2. The stock pulled off average four-quarter beat of 2.68%.

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