Don't Count on a Quick Rebound From American Express
There's no doubt that American Express (AXP) is one of the premier brands in the financial services industry. In fact, for years, AXP has earned risk-adjusted returns that surpass the rest of the industry.
The question is, how long can it sustain that? The year 2001 couldn't have been a worse one for American Express. And with consumer spending just beginning to slow and corporate profits under pressure, I can't imagine that its core travel-related charge card business is going to fare much better in 2002.
I know many portfolio managers who don't want to miss this stock -- if they haven't already. Since hitting a 52-week low recently of $24.20, AXP has bounced right back to $30, so it's not that cheap anymore. AXP is trading at a P/E ratio of 15 on 2002 estimates of $2.02 per share. That compares with a 10-year median P/E of 17.4 and a low of 9. On a price-to-book value ratio, AXP is even less tempting, trading at 3.3 times book value compared with a 10-year median of 3.2.
Yes, a takeover is quite possible, particularly in light of the recent resolution of the lawsuit AXP filed against rivals Visa and MasterCard. Assuming it's not reversed on appeal, the favorable ruling for AXP means banks can now issue Amex cards as well as Visa and MasterCard cards. As a result, many are speculating that AXP is now an attractive takeover candidate for a major bank.
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