EOT Trade Alert – August 29, 2012
August 29, 2012
Trade Alert:
Buy AXP October 2012 $60 Calls at $0.85 or better
Company Background:
American Express (AXP) is best known for its flagship green charge card. The company is segmented into three main businesses. US card services, international card and global commercial services, and global network and merchant services. American Express operates the most profitable closed-loop credit card network in the US and many other profitable card businesses around the world. Although the Amex card isn’t yet as widely accepted as Visa or MasterCard, the firm has evolved from a niche player into a global payment giant. However, unlike Visa and MasterCard, Amex can issue its own cards and doesn’t have to rely on merchant acquisitors to process transactions.
Short-Term Catalyst:
AXP’s proprietary card business offers a broad set of card products to attract its
target customer base.
There are many core elements of their overall strategy…
First and foremost is focusing on acquiring and retaining high spending, creditworthy card members across multiple groups.
Next is AXP’s commitment to designing card products with features that appeal to specific customer segments. This includes the use of strong incentives to drive spending on its various card products such as AXP’s Membership Rewards program.
In addition, the use of loyalty programs, such as Delta SkyMiles, sponsored by its co-brand and other partners to drive spending and the development and nurturing of wide-range of relationships with co-brand and other partners.
Let’s take a look at the company’s financial shape…
Analysts have their eye on this company… for the fiscal year ending 2012, the company is estimated to grow revenue by over 7%.
This is then estimated to be followed by another 5%-7% revenue growth in 2013.
In addition, analysts estimate American Express EPS growth for 2012 to reach $4.53 per share, up from only $4.09 a share in 2011. And amazingly enough, the EPS growth for 2013 is estimated to a whopping $4.85 a share.
This represents an EPS growth rate of 18% in two short years.
In other words, if these analysts’ numbers are correct, the company should be worth around $72 a share, up 26% from its current price of $57.50 per share.
Bottom line…
I have a strong buy opinion on the AXP. I see them benefiting as consumers and businesses increase their spending in a more stable economy.
With 56% of revenues from card spending, AXP is positioned very well.
Finally, management wisely invested windfalls in new technologies. Over 2009-2011, AXP is now free from credit concerns to innovate.
And it’s expected that digital, mobile payments and prepaid accounts will be a major strategic focus over the next few years.
So, it’s time to buy up some call options on this name and watch our profits climb!
Trade Details:
| Underlying Stock Symbol: | AXP |
| Current Bid-Ask Price: | $0.80 – $0.82 |
| Option “Buy Up To” Price: | $0.85 |
| Break-Even On Stock At Expiration: | $60.85 |
| Maximum Risk Per Contract: | $85 |
Exit Strategy:
AXP is trading at $57.42 per share. Resistance levels will be at $60 and again at $62. Don’t forget, we want this stock to move higher. Support levels will be at $55.50 and $54.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
Chart:
Category: EOT Trade Alert
