American Express: Financial Winner

NEW YORK ( TheStreet) -- American Express ( AXP) was the winner among major U.S. financial firms on Friday, with shares rising over 2% to close at $82.61.

The broad indices ended higher as investors sank their teeth into a positive indicator for continued economic recovery, with United Parcel Service ( UPS) reiterating its guidance for a 3% to 7% increase in earnings-per-share for 2013 over 2012.

But the market also reacted positively to another negative economic report supporting the case for no change in the Federal Reserve's "QE3" stimulus policy, following the next meeting of the Federal Open Market Committee (FOMC) on Oct. 29-30.

Sentiment in October among consumers in the United States fell to its lowest level during 2013, showing the effect of the partial shutdown of the federal government and the debate in Washington over the national debt limit, which came to an end on Oct. 17.

The Thomson Reuters/University of Michigan's final reading on the index on consumer sentiment fell to 73.2 in October from 77.5 in September. The October reading was the lowest since December 2012 and came in below the consensus forecast of 75.0, among economists polled by Thomson Reuters.

Data released by the Census Bureau on Friday also underlined the effect of the government shutdown fiasco. New orders for durable goods in September increased by $8.2 billion or 3.7% from the previous month to $233.4 billion.

But the increase was almost entirely driven by non-defense aircraft and parts orders. "Excluding transportation, new orders decreased 0.1 percent," the Census Bureau said. BMO Capital Markets chief economist Douglas Porter early on Friday wrote in a client note that he expected "core" capital goods orders to decline in September, because of "weaker business confidence due to the fiscal impasse."

Then again, the Census Bureau said that "excluding defense, new orders increased 3.2 percent." With the temporary agreement in Washington to raise the federal debt limit and continue the usual spending spree, there's plenty of hope that November "core" durable goods orders and defense orders will pick up nicely.

The continued uncertain direction of the flow of economic reports makes it appear likely that the FOMC next week will decide to have the Federal Reserve continue its $85 billion in monthly net purchases of long-term bonds, in attempt to hold long-term interest rates down. The bond purchases have continued at this level since September 2012.

The KBW Bank Index ( I:BKX) on Friday rose 0.3% to 64.86, with all but six of the index components ending with gains.

American Express

Shares of American Express have returned 46% this year. The shares trade for 15.3 times the consensus 2014 earnings estimate of $5.41 a share, among analysts polled by Thomson Reuters.

The company on Oct. 16 reported third-quarter earnings of $1.354 billion, or $1.25 a share, compared to $1.405 billion, or $1.27 a share, during the second quarter and $1.250 billion, or $1.09 a share, during the third quarter of 2012.

American Express said U.S. Card Services revenue grew 6% year-over-year to $4.286 billion during the third quarter. Period-end loan balances were up 2% year-over-year to $63.0 billion as of Sept. 30.

With its focus on high-margin travel services and credit card lending, the company is known for generating very solid returns on equity. American Express reported a third-quarter return on average tangible common equity of 30.6%, increasing from 29.7% the previous quarter, but down from 33.5% a year earlier.

KBW analyst Sanjay Sakhrani rates American Express "outperform," with an $87 price target. In a client note on Oct. 16, the analyst wrote that "the company's results were solid despite the challenging economic backdrop and we like the fact that the company has a number of levers that it can exercise if conditions become more challenging. Also, should the economic backdrop become more positive, we believe there is decent upside potential to top-line growth as well as our EPS estimates."

AXP Chart AXP data by YCharts

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

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 TheStreet.com 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.

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