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American Express (AXP - Free American Express Stock Report), the provider of charge and credit card payment products, has reported healthy financial results for the fourth quarter. For the December period, share earnings were $0.88, 49% better than the year-earlier tally. The results would have been even higher, but the company incurred $113 million ($74 million after tax) of restructuring and related charges during the three months. This hurt the bottom line by $0.06 a share. (Our fourth-quarter share-net estimate was $0.93.)

Nevertheless, the company performed well during the December quarter. Revenues of $7.3 billion represented a 13% increase over the prior year. The solid top-line advance reflected the consolidation of securitized cardmember loans and related debt onto the balance sheet. Higher cardmember spending, as well as elevated travel commissions and fees also helped lift revenues.  In addition, consolidated provisions for loan losses totaled $239 million, compared with $748 million in the year-earlier period, highlighting the continued improvement in credit quality. For the full year, share earnings came in at $3.35, far better than the $1.54 posted in 2009.

Looking ahead, although the U.S. housing market is weak and the unemployment rate remains near 9.5%, we expect cardmember spending to continue to increase in 2011. Overall, American Express' customers possess good credit scores, and any improvement in either housing or the job market should prove highly beneficial to the company's credit card and travel businesses. We also expect that the provision for loan losses will continue to decline from the elevated levels reached during the recent recession. All told, we estimate that American Express will post double-digit share-net growth in 2011, to $3.70.

That said, some risks are present here. Recently, the Department of Justice filed suit against American Express for refusing to adopt an industrywide agreement to allow merchants to steer customers toward lower rate credit cards. Visa (V) and Mastercard (MA) both agreed to the government's terms, but Amex refused and will fight the lawsuit. At this time, it is too early to tell if the company will be successful. However, investors should be aware that additional news and/or rumors in regard to this matter may influence the stock price in the months ahead.

Also, although American Express' overall business prospects appear healthy, the stock is unappealing at this time. Due to the sharp share-price run since its 2009 low, it possesses only average appreciation potential out to the 2013-2015. As previously noted, the possibility of regulatory and legislative changes adds an element of risk, as well.


About The Company: Established in 1850, American Express Company has grown to become a leading global payments, network, and travel firm. It operates through multiple business segments, including the Global Consumer Group and Global Business-to-Business Group. The company sold its AMEX Life business in October of 1995 and its American Express Bank in February of 2008. In mid-1994, it spun off Lehman Brothers to shareholders and ten years later, did the same with American Express Financial Advisors.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.