American Express Deserves Credit

Despite hitting a 52-week high, there is still untapped value in the stock.
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This column was originally published on RealMoney on Nov. 8 at 2:06 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

Shares of

American Express

(AXP) - Get Report

have hit fresh 52-week highs today after the company announced it was raising its targets for return on equity to 33%-36% from 28%-30%. This is the second time the company has upped its target in the past year since spinning off

Ameriprise Financial Advisors

(AMP) - Get Report

. Even though the stock is up more than 20% this year, I think there is still tremendous value in the stock. I believe it could be trading at $75 within 12 months.

I generally prefer low teen P/Es, but I believe American Express deserves a higher multiple because of its incredibly strong brand and predictable cash flows. The company maintains a dominant share in the market for corporate credit cards and it has a very high-end customer base that is increasingly using plastic for purchases. Because Amex charges higher fees to merchants, it can offer better terms and rewards to its cardholders, which increases customer loyalty. In addition, the business requires very little capital to fund growth, so it can return plenty of money to shareholders. In May, the company announced a 200 million share buyback, about a sixth of the float.

In keeping with TSC's editorial policy, Jonathan Edwards doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Edwards is a research analyst at TheStreet.com, where he works with Jim Cramer on Action Alerts PLUS. He follows the health care, consumer and financial sectors, with a focus on value stocks. Edwards appreciates your feedback;

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