This Day On The Street
Continue to site
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

5 Reasons to Buy American Express Now

NEW YORK ( TheStreet) -- American Express (AXP - Get Report) 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 - Get Report) and Citigroup (C - Get Report), 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 - Get Report) is the most expensive of the "big four" U.S. banks, trading for just over eight times forward earnings, Citigroup and JPMorgan Chase (JPM - Get Report) 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AXP $52.29 -3.10%
BAC $12.18 -5.90%
C $37.33 -6.30%
COF $60.16 -5.10%
DFS $44.45 -3.90%


Chart of I:DJI
DOW 15,823.23 -381.74 -2.36%
S&P 500 1,831.59 -48.46 -2.58%
NASDAQ 4,223.8970 -139.2470 -3.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs