This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

5 Reasons to Buy American Express Now

Stocks in this article: BAC AXP C WFC JPM COF DFS

NEW YORK ( TheStreet) -- American Express (AXP) remains a fantastic pick for long-term investors, as the company consistently generates stellar returns on equity and returns the majority of generated capital to investors.

Even with a sequential decline in earnings for the third quarter, American Express delivered year-over-year revenue growth of 9% and a stellar 27.8% return on average equity, increasing from 25.9% a year earlier.

The shares closed at $48.46 Friday, returning 15% year-to-date. While it's not a fair comparison, the KBW Bank index has dropped 34% year-to-date.

American Express CEO Kenneth I. Chenault

So why go in now? American Express's shares trade for 3.7 times their Sept. 30 tangible book value of $11.99, according to SNL Financial. That seems mighty pricey when compared to names like Bank of America (BAC) and Citigroup (C), which trade well below tangible book value.

American Express is also more expensive relative to forward earnings than the best-known traditional U.S. banking names, with shares trading for 11.5 times the consensus 2012 earnings estimate of $4.22 among analysts polled by FactSet, while Wells Fargo (WFC) is the most expensive of the "big four" U.S. banks, trading for just over eight times forward earnings, Citigroup and JPMorgan Chase (JPM) trade just under seven times consensus 2012 earnings estimates, and Bank of America trades for just over six times forward earnings.

The market values American Express is often compared to traditional banks because the company has been such a consistently strong earner through thick and thin, and because of the support provided for the shares through a steady return of capital to investors, mainly through share buybacks.

And looking back to the beginning of the U.S. credit crisis, shares of American Express consistently traded over 20 times earnings.

After the company reported third-quarter earnings of $1.2 billion, or $1.03 a share, increasing from $1.1 billion, or 90 cents a share, a year earlier, Guggenheim Securities analyst David Darst reiterated his "Buy" rating for American Express, with a $56 price target, saying that the company's "business model differs from that of other primary card brands in that AXP spans from payment issuer to merchant acquirer in a closed loop network," and that the company is "unique relative to other bank holding companies given its revenue mix, which is primarily fee income driven," while the banks depend on interest-rate spreads.

Darst also described American Express as "an income statement driven company rather than balance sheet driven," and that "fee income accounts for more than 80% of total revenue."

Over the short term, investors could well see outsized gains on heavily discounted names like Bank of America and Citigroup, but American Express shines as a long-term quality play.

Here are 5 reasons to buy American Express now:

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs