AXP Fundamental Research Investment Analysis, American Express Company

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American Express Company (AXP)

The Razor's Edge

2-Year Price History

Recent Price
(2/9/2009)
$17.75
52-Week Price
$14.72 - $52.63
Market Capitalization
$20.6 Billion
Dividend Yield
4.10%
Most Recent Dividend
$0.72

About American Express Company

American Express Company is considered to operate in the Financial sector. They specifically operate in the Credit Services business segment contained within the Financial Services industry.

The Company, together with its subsidiaries is a global payments, network and travel company which offers its products and services throughout the world.

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AXP Revenue

As a value investing shop, we are interested in seeing how AXP's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 1.52x and the low end of the range at 1.01x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for AXP of 0.60x is well below its normal historic Price to Sales levels. At a price of $17.75, AXP is 53% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

AXP Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. AXP is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from AXP. For example, AXP's Cash Earnings ratio per share has fluctuated between 7.93 and 12.05 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where AXP is with respect to prior business periods.

So with AXP's current price (latest close of $17.75) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, AXP is 63% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with AXP.

AXP Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely.

When reviewing dividend yields for AXP, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. AXP’s estimated annual dividend is $0.72 resulting in a current dividend yield of 4.02%. The highest dividend yield from AXP over recent history was 4.89% while the lowest dividend yield was 0.56%. It's hard not to notice that AXP pays a current dividend yield that is 47.52% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.

Peer Comparison

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American Express Company Industry Grouping

(2/9/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding AXP) 7.83 7.88 » 95.97 2.31 1.82 » 9.51 24.29% 19.06%
*10 year range does not include current year values
Morgan Stanley MS $25.4 Billion $23.61 3.96 4.39 » 36.44 0.68 0.11 » 2.21 12.25% 14.10%
American Express Company AXP $20.6 Billion $17.75 3.71 3.59 » 50.90 0.60 0.60 » 3.08 5.80% 29.72%
The Charles Schwab Corp. SCHW $16.6 Billion $14.35 11.48 8.37 » 310.93 2.92 1.96 » 8.71 4.63% 24.48%
BlackRock, Inc. BLK $14.0 Billion $118.82 9.14 8.17 » 58.26 2.21 1.98 » 8.68 56.03% 15.48%
Franklin Resources, Inc. BEN $13.0 Billion $55.88 6.06 10.66 » 26.68 2.12 2.47 » 6.25 18.34% 19.60%
CME Group, Inc. CME $12.6 Billion $187.98 8.52 7.78 » 47.55 3.64 2.59 » 21.70 30.21% 21.66%
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RazorWire™ & Community Discussion

Mad Money
2/10/2009 6:25 PM
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2/10/2009 9:22 AM
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2/10/2009 6:47 AM
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2/9/2009 6:13 PM
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2/9/2009 5:52 PM
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2/9/2009 9:28 AM
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2/6/2009 6:36 PM
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2/6/2009 3:59 PM
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2/6/2009 9:26 AM
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2/5/2009 3:58 PM
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2/5/2009 12:42 PM
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2/5/2009 12:42 PM
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2/4/2009 5:04 PM
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2/3/2009 5:18 PM
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2/3/2009 5:17 PM
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2/3/2009 7:58 AM
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2/2/2009 6:30 PM
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2/2/2009 3:58 PM
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2/2/2009 3:34 PM
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2/2/2009 12:42 PM
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2/2/2009 8:09 AM
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1/30/2009 4:37 PM
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1/30/2009 3:01 PM
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1/30/2009 6:16 AM
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1/29/2009 6:12 PM
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1/29/2009 3:58 PM
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1/28/2009 2:29 PM
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1/27/2009 6:11 PM
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1/27/2009 5:02 PM
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1/27/2009 3:17 PM
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1/27/2009 3:11 PM
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1/27/2009 3:02 PM
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1/27/2009 2:59 PM
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1/27/2009 1:32 PM
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1/27/2009 11:57 AM
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1/27/2009 11:05 AM
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1/27/2009 9:59 AM
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1/27/2009 9:41 AM
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1/27/2009 9:31 AM
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1/27/2009 9:27 AM
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Key Fundamentals

AXP - American Express Company Fundamentals
Price (2/9/2009) $17.75
Volume (2/9/2009) 10.9 Million
10 Day Average Volume 18.1 Million
13 Week Price Range $14.72 - $24.86
52 Week Price Range $14.72 - $52.63
LTM Revenue $31.9 Billion
 
Shares Outstanding (12/2008) 1.2 Billion
Market Capitalization $20.6 Billion
Shares Held By Institutions 942.1 Million
Institutional Holders 1,298
% Shares Held By Institutions 81.20%
Earnings Per Share (EPS) $2.14
P/E Ratio 8.30
Book Value Per Share $9.51
 
Gross Margin n/a%
Quarterly Dividend 0.72
Dividend Yield 4.10%
Beta 1.33
Fiscal Year Ends December