American Express: Still Charging Forward?

YES

"American Express has a strong brand, an affluent customer base and very high cash flow. The stock is worth more than it's trading at, even in this tough economic environment."
Craig Maurer,
Analyst, Calyon Securities

YESAmerican Express (AXP) gets the bulk of its income from account fees, not lending — so most of its business is based on not taking credit risks. With its membership-rewards program, it attracts loyal and high-spending customers who see using AmEx as a part of their lifestyle. The stock isn't trading in line with the strength of the company's business.

YES There's no doubt we're in a consumer slowdown, and AmEx's lending business is larger than it used to be. While I'm a bit worried the stock could take another hit and there could be more credit losses, these are near-term issues. When the economy comes back, AmEx will still be the card of choice.

YES The stock is trading at lower multiples than in the last recession, so even given the slowdown, it should be higher. We don't think AmEx's credit losses will be much worse than they've forecast. If you have a long-term horizon, it's a good time to buy.

YES A year from now I'm hoping that we're coming off, or at least seeing, the end of credit losses, and I expect the stock to be at $55.

NO

"It's a good firm but not immune to the forces of gravity. The big downward pull right now is credit quality; it's bound to worsen, and earnings are going to suffer."
Eric Wasserstrom,
Analyst, UBS

NO It's been growing its lending business much faster than the rest of the industry: At the absolute trough of the credit cycle, American Express added to its debt balance sheet. We're now in the midst of a consumer-led recession that's going to be characterized by credit losses.

NO If people are earning less, they're spending less. AmEx has some strengths in management and capital, but that doesn't change the fact that it's facing a difficult operating environment and is more credit sensitive than it's been historically. Its credit business is likely to deteriorate even more.

NO If you compare the stock price with earnings estimates, the stock looks inexpensive. But we think the consensus earnings estimates are too high. Its earnings numbers will have to come down, and the stock will come under more pressure.