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Time to Become an American Express (Stock)Holder?

Jim Sinegal

Jim Sinegal: We think American Express (AXP) is one of the most interesting opportunities right now in the financial space. American Express recently lost a big cobranding relationship with Costco (COST). That's obviously very bad news for American Express, but we think the market is overreacting to that and overlooking a lot of the good things the company has going for it. It's building on its expertise in customer service by letting Charles Schwab (SCHW) issue American Express cards through the bank. Charles Schwab is known for customer service in the online-banking space, so it's a great relationship for American Express. American Express is also partnering with Uber. It's another way to bring in the high-spending customers that American Express is famous for.

American Express is now helping merchants with marketing and loyalty needs through its Plenti program. We think that's a very interesting expansion of the American Express network and something that could add a lot of profitability to the company in the coming years.

Second, American Express is still benefiting from a huge tailwind in spending growth all over the world. People are transitioning from cash to cards. That's great for American Express and all the other card companies. At the same time, management is buying back a lot of shares. They're going to repurchase 8% or 9% of shares this year, so all of the cash that American Express is generating is essentially going right back into the pockets of shareholders.

Third, we think American Express' valuation is very attractive. It's at $80 right now, compared with our $95 fair value estimate, and it's only about 14 or 15 times this year's earnings. Management is still planning on growing earnings at a double-digit rate over the long run. If the multiple doesn't change, if the stock doesn't go up, American Express is going to look exceptionally cheap in two to three years.