Will American Express Continue This Bull Run?

With shares of American Express (NYSE:AXP) trading around $72, is AXP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

American Express is a global service company. Its principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses worldwide. The Company operates in four segments: U.S. Card Services, International Card Services, Global Commercial Services, and Global Network & Merchant Services. The way consumers and companies transact is constantly seeing incredible improvements which has led to amazing growth in this area. Consumers and businesses are seeing increasing worldwide growth and therefore, will continue to become dependent on the financial services provided by American Express.

T = Technicals on the Stock Chart are Strong

American Express stock has been exploding higher over the last several years. In fact, the stock is now trading at all-time high prices and seems to just keep surging higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, American Express is trading above its rising key averages which signal neutral to bullish price action in the near-term.

AXP

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of American Express options may help determine if investors are bullish, neutral, or bearish.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

American Express Options

18.14%

10%

8%

What does this mean? This means that investors or traders are buying a very low amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very low amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on American Express’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for American Express look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

7.48%

-44.36%

5.83%

4.55%

Revenue Growth (Y-O-Y)

3.88%

5.15%

3.84%

4.56%

Earnings Reaction

1.41%

-1.58%

-2.96%

-3.53%

American Express has seen increasing earnings and revenue figures over most of the last four quarters. From these figures, the markets have grown to expect a little more from American Express’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has American Express stock done relative to its peers, Visa (NYSE:V), MasterCard (NYSE:MA), Discover Financial Services (NYSE:DFS), and sector?

American Express

Visa

MasterCard

Discover

Sector

Year-to-Date Return

25.78%

19.12%

16.47%

21.82%

19.09%

American Express has been a relative performance leader, year-to-date.

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Conclusion

American Express offers efficient and necessary financial services to a growing consumer and company user base around the world. The stock had been quickly moving higher and is now trading at all-time high prices. Earnings and revenue figures have been growing steadily but investors have grown to expect a little more from the company. Relative to its peers and sector, American Express has been a year-to-date performance leader. Look for American Express to OUTPERFORM.

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