The Bullish and Bearish Case for American Express in 2015
The bull market is nearing its sixth anniversary and the market gains in 2014 took the Dow Jones Industrial Average up 7.5% and the S&P 500 Index up 11.4%. While those index performances do not account for individual stock dividends, American Express Co. (NYSE: AXP) closed out 2014 at $93.04, for a gain of 3.7%, including its dividend adjustments.
24/7 Wall St. has undertaken a bullish and bearish evaluation to reveal both sides of the coin and see what lies ahead for American Express in 2015. Key considerations for the year ahead include how the company will appeal to the market with mobile payments and whether it can expand its customer base.
The stock has a 2014 trading range of $78.41 to $96.24, and the consensus analyst price target of $98.71 implies upside of 6.1% from the year-end price. Then there is the dividend yield of 1.1% to consider.
The highest analyst price target for 2015 is $117, which implies upside of 25.8% from the year-end price. The lowest analyst price target is $79, which indicates downside of 15.1%. American Express had a market cap of about $97 billion at the end of 2014.
On the bearish side, it is highly unlikely that dividend investors would get excited about the low yield, particularly since the company targets high-end consumers rather than the mass market.
As long as American Express is a large holding in Warren Buffett’s portfolio, common sense might dictate there will always be investors willing to buy it. Buffett, of late, has not changed his position in American Express, and it appears that he plans to hold on to this stock for a long time. His current stake is 151 million shares, worth more than $13 billion.
American Express trades at about 17 times current earnings, and only 15.5 times expected 2015 earnings. That is in a bit of an investor no-man’s-land. It is cheaper than Visa and MasterCard, but far higher than the money center banking giants.
The upscale credit card giant has developed new partnerships and services with Uber, Apple Pay and McDonald’s in order to capitalize on the convergence of online and offline commerce. Recently, American Express solidified a multiyear contract with Delta Air to act as an accepting merchant and participant in the membership rewards program.
Back in September, Barron’s indicated that American Express is getting higher vendor attraction and customers are using American Express more often, which could lead to higher revenue in the years ahead. Another Barron’s analyst noted that American Express shares could rise as much as 30% in 2015.
To get a piece of the mobile payment pie, the company launched its American Express Token Service, which will act as a means to secure sensitive information when conducting mobile payments and to keep hackers out of its customers’ accounts. Visa Inc. (NYSE: V) launched a similar system at the same time.