Company executives failed to explain how they plan to respond to the looming expiration of its 16 year partnership with Costco (COST) - Get Report as the big box retailer has already signed an agreement with Citigroup (C) - Get Report and Visa (V) - Get Report that will begin next March, according to the Wall Street Journal.
"The competitive environment for AmEx is very challenging. Major competitors have all directed their efforts to take chunks away from their business. They've got serious problems," said Jason Arnold of RBS Securities before yesterday's meeting.
Analysts at Susquehanna believe that there may be a silver lining to losing Costco as a partner though, according to Barrons. "American Express explained the backstory of Costco. Sounds like they were in a situation where the demands were such that renewing Costco would have lowered returns, and at the expense of better deals due to rigid non-competes," said analysts. "Also, while management would not comment on plans for selling the Costco loan book or their retention plans for the existing card holders, they did say that efforts to retain spending from the Costco-Canada portfolio were "encouraging" though early and preliminary."
AmEx CEO Kenneth I. Chenault guided full year earnings growth between 12% and 15% this year despite last year's revenue growth of 4% falling short of the company's own 8% growth guidance.
The company's failure to meet revenue targets forced it to announce in January that it was cutting 4,000 jobs later this year.
The Street's Jim Cramer, Portfolio Manager of Action Alerts PLUS Charitable Trust Portfolio, was not satisfied with what he heard at yesterday's meeting.
We decided to sell American Express above here for the trust because we were not satisfied with the explanation for the loss of Costco and because we were shocked at how important Costco was to American Express's overall growth rate, particularly its international growth rate. We come back from the meeting just as unsatisfied as we went in.
TheStreet Ratings team rates AMERICAN EXPRESS CO as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate AMERICAN EXPRESS CO (AXP) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations, 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:
- You can view the full analysis from the report here: AXP Ratings Report