Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Costco Corp. Sale Of USA Portfolio To Bring About $2.2 Billion Gain For American Express

|Includes: Costco Wholesale Corporation (COST)

Deutsche Bank sees a $0. 27 cent EPS accretion for American Express, over Costco's credit card portfolio sale to Citi.

On Tuesday in a published report, Deutsche Bank said that Costco Wholesale Corp.'s United States portfolio would result in a benefit of around $2.2 billion to American Express Co. The sell side firm reaffirmed its rating of Buy with a target stock price of $90. As the news reached market, the stock of the company went up by 0.71% to $79.37.

David Ho, an analyst at Deutsche bank commented that portfolio auction of the company to Citigroup Inc. would be a major catalyst. He believes that this indicates a premium of 15% on credit cart $15 billion portfolio when the transaction finishes. His method shows a sum of the parts analysis, which integrates the company's 28 year study of acquisition of credit card portfolio.

Mr. Ho further said that the bigger the benefit, the additional American Express can put in retaining incentives of card. His examination shows that bonus of each card signup worth $1 billion hints to $25 billion of billed business, earnings of 27 cents per share and loans of $3 billion over the year 2016.

The company thinks that it is important for Citigroup to buy portfolio of Costco because of lack of growth of credit card since the year 2008. Mr. Ho believes that there is pressure on Citigroup to publish this by third quarter of calendar year 2015.

Mr. Ho noted, "AXP can demand a large premium because it is better at extracting more value from out of store spend than Citi and retaining the portfolio, makes it easier to mitigate Costco, given: 1) Less marketing restrictions, 2) Better data as a closed loop provider, 3) Better brand/service, and 4) Better technology and scale."

American Express produces 1.5x higher mean spend each card then the normal Visa card, and 3x against Citi. Balances each card are 30% more than Citi and 10% from Visa.

Furthermore, Citi requires this portfolio, as the expansion of card loan has got more challenging and expensive. Mr. Ho said, "Increasing US card earnings for Citi are an effective way to utilize its DTA."

Though, he considers that American Express must not publicize this deal by September this year. He closes: "AXP's Costco deal is set to terminate 3/31/16. Card deals >$5b take on average ~6 months to close and a Costco sale would be the largest co-branded deal ever. Thus, there is a realistic chance that AMEX acceptance at Costco is extended and/or it can keep the loans past 3/31/16."

The company expects adjusted earnings of $5.5 per share for FY15 and $6 for FY16.