Monday, April 23, 2012

American Express: 1st Quarter 2012 Results

From last week's American Express (AXP) 1st quarter earnings release:

"Higher cardmember spending, excellent credit metrics and disciplined expense management helped us to start 2012 with record first-quarter earnings and revenues," said Kenneth I. Chenault, chairman and chief executive officer. Spending on the American Express network rose 12 percent, remaining strong throughout the quarter, both in the U.S. and internationally. Credit quality continues to be among the best we have ever experienced, and our lending portfolio continued to grow at moderate levels.

Later in the release Chenault added...

"Our overall performance again underscored the advantages of our spend-centric business model, as did the results of a financial review, or stress test, of major financial companies that was completed by the Federal Reserve this quarter. American Express ranked among the highest in the group, and the Fed notified us that it had no objections to raising our quarterly dividend or repurchasing shares.

As a result, we increased our quarterly dividend by 11 percent to $0.20 per share, from the $0.18 level that we maintained throughout the financial crisis and recession. We are also moving ahead with plans to repurchase as much as $4 billion of outstanding shares this year and an additional $1 billion in the first quarter of 2013."

The company earned $ 1.07/share in the first quarter and will likely earn $ 4.30/share this year.

That $ 4.30/share will already 28% higher than the company's peak earnings before the financial crisis.

For a few months in early 2009, the shares were, at times, selling in the $ 10-15/share range (briefly, they actually hit single digits).

So just a modest multiple of normalized (and growing) earnings power. Mr. Market's terrible mood at that time didn't change the long run prospects for AmEx or the company's intrinsic value.

Instead, it just temporarily made shares of a good business available cheap for those with a reasonably long investing time horizon who liked the business.
(In contrast to those market participants who may be trying to figure out how bad news may move a stock in the short or even intermediate run.) 

As of this past Friday's close the shares were selling at $ 57.45 so, even if not necessarily expensive, they're no longer a bargain.

Adam

Long position in AXP at much lower than recent market prices. No intention to buy near the current prices but it's generally a long-term position. AXP has been part of the Six Stock Portfolio since it was established April of 2009.
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