AMERICAN EXPRESS CO. $76 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.0 billion; Market cap: $76.0 billion; Price-to-sales ratio: 2.4; Yield: 1.5%; TSINetwork Rating: Average; www.americanexpress.com) issues the only credit card Costco accepts at its U.S. outlets. However, this deal expires in March 2016, so fewer Costco shoppers are signing up for new cards. As a result, Amex will likely sell these loans.
The proceeds would help the company fund new services. For example, it recently launched Amex Express Checkout. Similar to PayPal (see page 73), this service makes it easier for U.S. cardholders to buy goods online.
Meanwhile, Amex earned $1.47 billion in the second quarter of 2015, down 3.7% from $1.53 billion a year earlier. The 2014 quarter included 100% of Amex’s business-travel division, which it later merged into a 50/50 joint venture. Per-share profits fell 0.7%, to $1.42 from $1.43, on fewer shares outstanding.
Revenue declined 4.0%, to $8.3 billion from $8.6 billion. However, if you exclude the negative impact of currency exchange rates, revenue gained 5%. Overall cardholder spending rose 6%, while the number of credit card loans increased by 4%.
The stock trades at 13.8 times Amex’s likely 2015 earnings of $5.49 a share. The $1.16 dividend yields 1.5%.
American Express is a buy.
