AmEx Gains from Uber Alliance, Shares Hit 52-Week High - Analyst Blog

American Express Co. AXP, or AmEx'slatest attempt to aggressively penetrate into the mobile-payments market led its shares to scale new 52-week high of $95.88 on Jun 9. This global payment processor's shares has risen about 7.4% alone since the beginning of 2013 and 9.3% since release of its first-quarter 2014 results in mid-April.

The momentum of this Zacks Rank #3 (Hold) stock was driven by strong credit indicators, higher capital returns and strategic alliances including the one with global firm for superior brands of car-rental service − Uber Technologies Inc.          

Monday's closing price represents a strong one-year return of about 22.5%, which outperformed the S&P 500 index of 18.7% as well. Average volume of shares traded over the last three months stands at approximately 3,482.7K.

Earnings Review

On Jan 16, AmEx reported fourth-quarter 2013 operating earnings per share of $1.33, higher than both the Zacks Consensus Estimate and the year-ago quarter figure by 2.3% and 15.7%, respectively. Overall, the companydelivered positive earnings surprise in 3 of the last 4 quarters with an average beat of 2.2%.

The upbeat earnings resulted from higher spending on cards as well as improvements innet interest income and loan portfolio. Further, higher yields, lower operating expenses and strong credit indicators were partially offset by higher provision for losses

Mobile Payments a New Growth Catalyst

AmEx has been focusing on strengthening performance in its U.S. card services and Global Network & Merchant Services segments, both of which witnessed healthy growth during first-quarter 2014. The addition of Uber to its network further acts as a growth catalyst for AmEx's mobile-payments business.

Valued at about $17 billion, Uber is a venture capital-backed start-up that has gained strong valuations in a short span of 4 years. Per the alliance, AmEx aims to tap all the customers of Uber to use its cards on the latter's mobile application. For this, AmEx will be reward the members with extra points for booking cars through this application.

We look forward to many more of such tactical merchant alliances by AmEx within the mobile-payments space, which is expected to be booming. Early this year, Forrester Research Inc. estimated that the market for mobile payments in the U.S. is expected to grow to almost $90 billion by 2017 from about $12.8 billion in 2012.

Given the convenience, affordability and security, both merchants and consumers are steadily adopting mobile payments, raising growth prospects for AmEx as well. The recent alliance with Wal-Mart Stores Inc. WMT, the merchant acquiring program – OptBlue and the dividend hike further instill confidence among the investors.

Meanwhile, some better-ranked financial stocks like Global Cash Access Holdings Inc. GCA and Euronet Worldwide Inc. EEFT are worth considering. Both the stocks carry a Zacks Rank #2 (Buy).

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