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

Analysts Jump on American Express Growth Bandwagon

NEW YORK (TheStreet) -- American Express (AXP - Get Report) is making a major push for retailers to consider it a true alternative to Visa (V - Get Report) and MasterCard (MA), and Wall Street analysts are buying.

During the company's semi-annual investor conference last Wednesday, American Express president for global merchant services Anre Williams announced a new initiative called OptBlue, through which "third-party acquirers will contract directly with US small merchants for American Express card acceptance. They will sign the merchant, own the contract, determine the pricing with the merchant and provide servicing," according to a transcript provided by Thomson Reuters.

This is the latest effort by American Express to compete for small merchants' business. "Many small merchants believe we are too expensive and many think we are more cumbersome to work with because we are different than Visa and MasterCard," Williams said. But through the new program, merchants "now have the convenience of working with a single source, the third-party acquirer who has the flexibility to give them one pricing construct, a single statement, one settlement process and one contact for servicing for all of the major card brands the merchant chooses to accept."

The company in its presentation last week also said that out of an estimated $4.4 trillion in spending by small U.S. merchants during 2013, the "plastic spend" was only 9%, underlining a major growth opportunity. Through its OPEN program, the company said it had seen a compound annual growth rate of 12% from 2010 through 2013.

Must Read: JPMorgan Upgraded On Improved Lending Prospects

American Express last month reported 2013 earnings of $5.359 billion, or $4.88 a share, on revenue of $32.974 billion, increasing from earnings of $4.482 billion, or $3.89 a share, on revenue of $31.555 billion, during 2012. The company reported returns on average equity (ROE) of 27.8% for the fourth quarter and for 2013. The full-year ROE was up from 23.1% during 2012.

Those are very strong numbers, and analysts believe the good times for American Express will continue, with a consensus 2014 EPS estimate of $5.45, rising to $6.05 in 2015.

Morgan Stanley analyst Betsy Graseck on Monday upgraded American Express to "overweight" from "equal weight," while raising her price target for the shares to $100 from $90. Graseck left here 2014 EPS estimate for American Express unchanged at $5.55, but raised her 2015 EPS estimate to $6.36 from $6.30, and her 2016 estimate to $7.14 from $6.98.

"Amex's US merchant penetration has been just 67% of [Visa and MasterCard's]. Why? Small merchants perceive Amex as more expensive, more cumbersome with its independent account statements, and slower to pay. Lower card acceptance has limited AXP's share of both cardholders and cardholder wallet," Graseck wrote in a note to clients.

But she is a believer in OptBlue, since "Amex will eliminate statement charges and provide next-day payment to small merchants."

Graseck cited Discover Financial Services (DFS) for providing a "compelling precedent," as that company was able to increase "merchant penetration from 75% to 90% in 2008/09 after signing on third-party acquirers."

She believes American Express will see compound annual growth rates of 7% for revenue and 14% for earnings through 2016. The higher growth rate for earnings assumes continuing improvement to operating leverage, as the company cuts costs, and also factors in large repurchases of shares. The company bought back $3.992 billion in common shares, while reducing its average share count by 4%. American Express expects to complete $1 billion in buybacks during the first quarter.

Graseck's upgrade followed an upgrade of American Express to a "buy" rating by Montgomery Scott analyst Sameer Gokhale on Thursday.

Shares of American Express were up 0.8% to $87.69 in morning trading.

This chart shows the stock performance American Express against the Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) since the end of 2011:

AXP Chart data by YCharts

Barclays Data Breach Makes Target Look Tame

JPMorgan Upgraded On Improved Lending Prospects

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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 $72.01 0.52%
V $79.62 0.77%
AAPL $117.26 -0.88%
FB $106.55 2.20%
GOOG $761.98 2.60%


Chart of I:DJI
DOW 17,838.75 +118.83 0.67%
S&P 500 2,092.93 +12.52 0.60%
NASDAQ 5,135.8990 +27.2330 0.53%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs