AMERICAN EXPRESS CO. $41 (New York symbol AXP; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $49.2 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.8%; WSSF Rating: Average) gets most of its revenue from the the fees it charges merchants when consumers use its credit and charge cards. It also provides travel-agency services.
American Express set aside $5.3 billion to cover bad loans in 2009. That’s down 8.4% from $5.8 billion in 2008. However, the 2009 figure is still up more than 100% from four years ago.
In 2009, the company’s earnings fell 25.6%, to $2.1 billion from $2.9 billion in 2008. The company sold $555.5 million of new common shares in 2009 to help repay the $3.4 billion in loans it received from the U.S. Treasury under the Troubled Asset Relief Program (TARP). Because of the extra shares outstanding, earnings per share fell 37.7%, to $1.54 from $2.47. Revenue fell 13.5%, to $24.5 billion from $28.4 billion.
American Express’s earnings should rise to $2.68 a share in 2010. The stock trades at 15.3 times that estimate.
The company’s credit losses are slowing. It should also benefit from rising travel demand as the economy improves. However, the likelihood of higher interest rates could prompt cardholders to cut their spending.
American Express is a hold.
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