American Express (AXP): Low risk and 1.4% dividend yield

By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 10/25/12 Sign up for free Cabot Wealth Advisory e-newsletter

American Express (AXP), established in 1850, is a leading global payments and travel services company. Beginning in 1994, the company divested its ancillary businesses (including Lehman Brothers) to focus on credit cards and travel services.

International revenues make up a large part of AXP’s business. Increasing card spending and higher travel commissions spurred rapid growth during the past two years.
Sales and earnings declined in 2008 and 2009, but rebounded to record levels in 2011. AXP’s strong balance sheet and low customer defaults helped the company weather the recent recession. I forecast sales growth of 9% and EPS growth of 10% during the next 12 months, similar to the preceding 12 months ended 9/30/12.

The company’s new technologies in digital and mobile payments will help produce solid growth during the next several years. A stronger or more stable global economy could spur more spending by businesses and consumers, thereby boosting AXP’s revenues more than expected.

American Express shares are undervalued at 13.2 times latest EPS. AXP shares are low risk and offer a dividend yield of 1.4%. Warren Buffett’s Berkshire Hathaway owns 13% of AXP.

Company Details

American Express (AXP)
World Financial Center
200 Vesey Street
New York, NY 10285
Index Membership: Dow Jones Composite, Dow Industrials
Sector: Financial
Industry: Credit Services
Full Time Employees: 63,600