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American Express Co. $55 – New York symbol AXP

AMERICAN EXPRESS CO. $55 (New York symbol AXP; WSSF Rating: Average) is one of the world’s largest financial services providers, with operations in over 130 countries. Its well-known credit card business accounts for roughly 90% of its revenue. The remaining 10% comes from its travel services business.

In September 2005, Amex handed out all of its shares in subsidiary American Express Financial Advisors (now called Ameriprise Financial Inc.) to its stockholders as a tax-deferred dividend.

As part of the spin-off, it restructured its remaining operations. These moves cut its pre-tax profits in the three months ended December 31, 2005 by $65 million. However, it also received a $60 million gain from a tax settlement. To put these figures in context, Amex earned $0.60 a share (total $751 million) from continuing operations in the fourth quarter of 2005, up 13.2% from $0.53 a share ($669 million) a year earlier. Revenue grew 8.5%, to $6.4 billion from $5.9 billion.

Tougher new bankruptcy laws led to a surge in bankruptcy filings under the old rules in the most recent quarter, and this sparked a $192 million jump in Amex’s U.S. credit card loss provisions. However, bankruptcy filings have dropped sharply since the new law came into affect. Non-performing loans accounted for 1.6% of Amex’s credit card loans in 2005, down from 1.8% in 2004.

The Ameriprise spin-off let Amex focus on expanding its card business. It recently formed new alliances with MBNA (now owned by Bank of America), Citigroup and HSBC. Thanks to these deals, the number of cards outstanding rose 9% in 2005, while spending per card grew 7%.

These figures should continue to rise as more individuals and businesses pay for everyday items with credit cards instead of cash and checks.

Amex’s stock fell below $47 after the spin-off, but it has moved up in the past few weeks. It now trades at 18.6 times Amex’s forecast 2006 profit of $2.96 a share. The $0.48 dividend yields 0.9%.

American Express is a buy.

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