If you're looking to invest in a credit card company it's hard to look past American Express AXP. With over 102 million cards worldwide, American Express boasts thee to four times more spending per card than its competitors MasterCard MA and Visa V. While vendors may look down upon it at times for its higher charge rate, this card targets the least risky of cardholders and delivers by offering them lower card rates.
Strong Fourth-Quarter Earnings and 2012 Year-End Results
Only taking a quick glance at fourth-quarter earnings might leave one worried about a lackluster $0.56 earnings per share but this was due to pre-announced re-structuring, award redemption and reimbursement write-offs that amounted to approximately $895 Million.
This quarter American Express smoked the competition when it comes to write-off rates and lending that was 30 days past due. Only Discover DFS, with a 2.3% write-off rate and 1.9% of loans 30 days past due came close to AXP's 2.0% and 1.2% rates respectively.
Total Revenue for 2012 came in at $31,582 Billion amounting to an diluted EPS of $3.89.
With unemployment still high, credit card companies are in the perfect position to benefit from a weak economy as customers look for easy credit. This, and American Express' large card base catapults it in front of competitors. Future growth will rely solely on cutting costs and trying to entice customers to spend more.
Increased regulation posses a big threat for all credit card companies in the form of weaker margins. This pressure could force competitors to start price wars in an attempt to gain market share. Lower prices would certainly entice American Express to follow suit but I believe its history and pride in having quality cardholders will keep greedy urges at bay.
American Express' stock price has been, like most stocks, riding the waves of quantitative easing. This year shares have risen close to 20% from $51 a share to recent highs of $63.00. While I feel this share price appreciation is warranted for all of American Express' work, I can't help but feel like Mr. Market's fair value makes it a perfect time to scale back.
Time to Take Profits!
American Express definitely has everything an investor looks for in a quality business. An increasing customer base, room to cut costs and competitive margins all result from its incredible business model. However, this feels like the perfect time to take some profits. As hard as it is to buy when prices are low, it is equally hard to sell a good company when market value is fair. For those of you holding shares like myself, now is the time to start scaling back. The research is done and, if the market continues its recent decline, an opportunity to re-buy at a lower price may present itself.
Disclosure: I am long AXP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: While I am long AXP I am selling a good portion of my position to take advantage of its recent price appreciation.