As far as credit card companies go, American Express Co. (NYSE:AXP) has remained my favorite major credit card operator, for a number of reasons.
Top of list is American Express' relative valuation to its peers. The company has a forward price to earnings (P/E) ratio of just 12.3, compared to valuation multiples in the high-$20's for Visa Inc. (NYSE:V) and Mastercard Inc. (NYSE:MA). The company has maintained an excellent balance sheet relative to its peers, and the most recent earnings from American Express tell a very encouraging growth story.
American Express reported revenue growth of 9% and a 25% year-over-year increase in diluted earnings per share, massive numbers in this current economic environment.
With some expecting to see consumer spending numbers decline in the near to medium term, given relatively high debt levels globally, headwinds do persist, leading to much of the valuation reduction companies like American Express have seen of late.
Additionally, credit card companies are continuing to offer higher rewards to entice customers to switch, a reality which has eaten away at margins in recent years. I expect continued competition and slower credit growth to be long term impediments, though I view American Express as a superior option to its peers, leading me to consider a potential long-short strategy with respect to American Express (i.e. long AXP, short V and MA).
All three companies are on my watch list and will remain there for the foreseeable future.
Invest wisely, my friends.
