AmEx Charges Ahead of Rivals

NEW YORK (TheStreet) -- American Express (AXP Quote) has pulled ahead of other financial-sector names in the past month, as investors have warmed up to the company following an initially tepid response to its third-quarter results on Oct. 22.

AmEx shares are up 11.4% in the last five days and nearly 15% during the past month, handily outperforming banks like Citigroup (C Quote), Bank of America (BAC Quote) Wells Fargo (WFC Quote)and Capital One Financial (COF Quote) as well as transaction-focused credit card companies like Visa (V Quote) and Mastercard Inc.(MA Quote) that don't have consumer loan exposure but have been doing well as consumers in general are charging more to their credit cards.

A big part of the reason for the rising credit card balances is that quarterly year-over-year comparisons now look far better now because of lower prevailing gas prices during last year's fourth quarter, according to Chris Brendler, analyst at Stifel Nicolaus. The weak dollar, especially compared to its great strength a year ago, is also contributing to improved revenues, Brendler says.

"Stocks tend to be sensitive to the top line and spending trends," Brendler says, though he notes this effect is less pronounced for AmEx than other card companies. More important for AmEx, he says, is the company has better control over its loan portfolio, which, he says "has gone from one of the worst performers last year to one of the best performers this year in terms of delinquency trends and losses as well."

Brendler also notes that AmEx is better positioned against tough new consumer protection laws because it relies on "penalty fee income" less than competitors. He upgraded the stock to buy from hold on Oct. 26, slapping a $50 price target on the name. Longer-term, he even thinks AmEx could turn out to be an acquisition candidate for a large U.S. or European bank. Such a deal would make good strategic sense, Brendler says, because AmEx still relies too heavily on capital markets rather than deposit-based funding, a strategy that has proved dangerous since the collapse of Bear Stearns last year.