American Express Company (NYSE:AXP)

Mobile payments increasing. Cheapest of all the networks

AXP overpriced.
Expect ROI of 5% to market ROI of 6.5%.

A great company, endorsed by Warren Buffett. They truly believe in customer service, and are able to price themselves above their competitors due to their high net worth clients.

Its at a near 52 week high, but I think a clear winner as people move away from cash

Dowjones in maximums.

Technicals

S&P ratings search criteria:

S&P STARS Ranking: = 5 stars (5 is the highest rank out of 5)
&
S&P Fair Value Ranking: = 5 (5 = undervalued, 1 = overvalued)

5 Reasons Not to Worry About American Express’ Earnings:
fool.com/investing/general/2013/01/18/5-reasons-not-to-worry-about-american-express-earn.aspx

lowest P/E of any card out there and the highest dividend...and who uses paper when they have access to plastic? Swipe fees may have been lowered, but in reality this is still one of the most profitable business models around...without the downside of dealing with the customer accounts ... that is still the responsility of the individual banks...

I don't see credit cards going anywhere, especially as new mobile services such as NFC and Google Wallet gain increased traction and people get even further from cash and checks.

Improved earnings per share by 7.5% recent Q
compared to same Q last yr. positive for past 2 yr.
during past fical yr in bottom line earnings by $4.08 verses $3.35 net income increased by 0.6% going from $13331.00to 1339.00M

don't leave home w/o it

There are only 4 payment networks, Visa, MC, Discover and AmEx, and AmEx is the cheapest. Also banks get paid a fee by merchants whenever a credit card is used, AmEx gets the biggest fee, banks need money, why not switch to the AmEx network?

great past performance

influential people carry an amex card and use it constantly

Finally managed company with sound financial goals.

Two words: mobile payments

Electronic payment systems are big, and getting bigger.

Economy is getting better from here and AXP is directly tied to consumer spending. Financials make sense otherwise even at current levels, and there is minimal downside risk.

Let me preface this by saying that I'm not a big fan of credit card companies. Their business model is based around getting consumers to accumulate debt and then profit on the interest from that debt, which with a little sacrifice the consumer could have avoided in many cases. Thus, I would not invest in such a company because 1) I do not wish to support such a business model and 2) such a business will often be at loggerheads with its customers. I realize others may disagree, and take or leave my opinion as you will. With that out of the way, there are considerable headwinds in the industry. US consumers may finally be eliminating debt, out of which credit card debt would be the first to go. This could be devastating to credit card companies. On American Express specifically, while ROE is good and P/E is not unreasonable (12.9x), as well as unsurprisingly robust net profit margin, the return on assets is poor and debt is fairly high at 3.3 times equity. EPS has been growing at a fairly high rate, which might mean this is unsustainable (see above). Total debt has been fluctuating, but is down from the high. While debt in almost 4x cash, from the balance sheet it appears $16B in cash is on hand for future use, which is nice. But toss in that the stock is near its 52 week high and only reached $65 in the middle of '07, and I see little but down side. Follow along as I continue to evaluate the rest of the Dow 30.