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American Express (AXP - Free Amex Stock Report), the provider of charge and credit card payment products, has reported better-than-expected results for the 2011 first quarter. In the March period, share earnings were $0.97, 33% better than the year-earlier tally, and $0.07 higher than our estimate. Revenues of $7.0 billion represented an almost 7% increase over the prior year. The solid top-line advance mostly reflected higher card member spending, as well as increased travel commissions and fees. In addition, consolidated provisions for loan losses fell materially, to $97 million, compared to $943 million, year over year, highlighting the vast improvement in credit quality.

Looking ahead, it appears that American Express will perform well over the course of 2011. Although the U.S. housing market remains weak and the unemployment rate is elevated, we expect card member spending to continue to increase at a healthy rate over the next several quarters. Overall, American Express' customers possess good credit scores, and any improvement in regard to the housing or job market should prove highly beneficial to Amex's credit card and travel businesses. We also expect further reductions in the loan loss provision, compared to the heightened levels reached during the recession. All told, in our view, American Express will achieve a healthy share-net gain in 2011. The March quarter performance, along with our improved outlook, has caused us to raise our share-net estimate by a dime, to $3.80, which would represent an advance of more than 13%, compared with last year's tally. Furthermore, we are introducing a 2012 bottom-line estimate of $4.20, 10% higher than our projected 2011 call.

Although American Express' business prospects appear healthy, this stock is not particularly appealing at this time. The price of this equity has increased materially from its 2009 low, and now possesses slightly below-average appreciation potential to the 2014-2016 time frame. Lastly, it is possible that the federal government will seek to pass laws that could limit the business prospects of Amex and the other credit card companies, which adds an element of risk here.

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.