NEW YORK (TheStreet) -- American Express Co. (AXP) stock is up 1.13% to $83.10 in early morning trading Thursday after Deutsche Bank upgraded the company's rating to "buy" from "hold," and increased its price target to $90 from $88.
After American Express announced this month that it is ending its partnerships with Costco (COST) and JetBlue (JBLU) , and the negative Department of Justice ruling claiming that American Express' rules for merchants violated anti-trust laws, Deutsche Bank lowered its growth expectations for the credit card company.
"We believe the company will be able to restore its earnings power sooner than expected," Deutsche Bank added.
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Analysts said that American Express will be able to help itself by minimizing the earnings drag from Costco existing cardholders, managing expenses, and deploying excess capital into new partnerships/growth channels.
In 2014, American Express posted earnings of $5.20 per share and revenue of $32.88 billion.
Analysts estimate earnings of $5.50 and $6 per share for fiscal years 2015 and 2016, respectively. Deutsche Bank forecasts revenue of $34.95 billion and $37.31 billion in 2015 and 2016, respectively.
"... we learned that American Express (AXP:NYSE) is increasing annual rates on more than 1 million credit cards. Cardholders will now pay at least 12.99% in annual rates, a 2.5% increase, on average. The company justified this move by explaining that, following a portfolio review last year, it discovered many customers had APRs considerably below market rates, sometimes as low as 3.25%. The million customers affected are merely a fraction of its 42.6 million total cards in circulation, but it will still have a noticeable, albeit modest, effect on the company's top line.
We view this move favorably, and we are glad the company is taking action to recover the impending lost revenue from the Costco (COST:Nasdaq) deal, which is set to expire next spring...We are interested in seeing what other initiatives the company has up its sleeve, and we do not expect management to be complacent."
Separately, TheStreet Ratings team rates AMERICAN EXPRESS CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMERICAN EXPRESS CO (AXP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its notable return on equity, increase in net income, growth in earnings per share and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Consumer Finance industry and the overall market, AMERICAN EXPRESS CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- The net income growth from the same quarter one year ago has exceeded that of the Consumer Finance industry average, but is less than that of the S&P 500. The net income increased by 10.6% when compared to the same quarter one year prior, going from $1,308.00 million to $1,447.00 million.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.4%. Since the same quarter one year prior, revenues slightly dropped by 2.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- AMERICAN EXPRESS CO has improved earnings per share by 14.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, AMERICAN EXPRESS CO increased its bottom line by earning $5.55 versus $4.88 in the prior year. For the next year, the market is expecting a contraction of 0.9% in earnings ($5.50 versus $5.55).
- You can view the full analysis from the report here: AXP Ratings Report