American Express may rise from low base

Exchange: NYSE

Sector: Financial

Industry: Credit Services

Entry strategy

Price: $104.5—$106.5

Stop-loss: under $98.5

Take profit: minimal aim — $117.5, then $132

Investment horizon: until the end of the 1st quarter of 2019

Company details

American Express was founded in the United States in 1850 through a merger of competing firms. Its main activity was the courier delivery of shipments and cargo.

Currently it is an international financial and tourism corporation — a payment system that issues bank cards and travelers checks. The company provides business services to private and corporate clients.

The issuer’s capitalization is about $93.5 billion (group + Large).

Company financial performance

In 2017, American Express for the first time in the last 26 years ended a year with a loss. It amounted to $1.2 billion. At the same time, the corporation’s revenue for the period grew by 10.2% y/y to $ 8.84 billion and was higher than experts’ expectations ($8.72 billion).

The failure in profits, like for a number of other American companies, was caused, first of all, by the tax reform in the USA. American corporations had to pay the tax on the profits of their foreign subsidiaries repatriation. That sharply increased their costs. In the case of American Express, these costs amounted to about $2 billion.

    After the publication of the company’s financial results for 2017, its shares fell, which creates the effect of a low base. We expect that the following factors will also affect the value of American Express:

  • On September 25, 2018, the Board of Directors of American Express Company ($AXP) approved an increase in dividends on ordinary shares to $ 0.39 (+ $ 0.04, or 11%). The dividend yield of the stock is small, less than 0.36%, but the ability and willingness of the company to pay shareholders more is perceived positively by the market.
  • For the second quarter of this year, the company showed an increase in earnings per share of more than 25% (see Table. 1). October 18, 2018 after the close of trading American Express is expected to publish financial results for the 3rd quarter of 2018. The consensus forecast of analysts on them is also very optimistic.
Table 1. Main quarterly financial results of American Express Company ($AXP). Source: MarketWatch — Open original image

Technical analysis (trading plan)

Graph 1. Technical analysis of American Express Company ($AXP). Weekly data. Source: TradingView — Open original image

Published on the 3rd of October, 2018