With 2012 just beginning, now's a smart time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should buy it for your portfolio -- or sell it if you already own it.
Today, let's take a look at American Express (NYS: AXP) . As I discussed last month, the company known for its charge card has fallen behind the competition in terms of size and popularity. But with several ideas to get back in the game, AmEx is poised to build on its modest stock gains from last year. Below, I'll take a closer look at what people expect from American Express and its rivals.
Forecasts on American Express
Median Target Stock Price
2011 EPS Estimate
2012 EPS Estimate
Expected Annual Earnings Growth, Next 5 Years
Source: Yahoo! Finance.
Will American Express keep moving fast in 2012?
Analysts expect healthy gains for AmEx shareholders. Although they see pretty weak earnings growth in 2012, the target price of $56.50 is about 17% higher than where shares closed Friday.
AmEx has become the value play in the card industry. Both MasterCard (NYS: MA) and Visa (NYS: V) are expected to grow more quickly, and they carry the higher valuations to reflect that growth. Interestingly, though, AmEx has three times the revenue of Visa and more than four times what MasterCard gets in sales. But with much narrower margins -- resulting from the fact that AmEx takes on credit risk, while Visa and MasterCard don't -- AmEx's profits are only marginally higher than its two rivals.
From the credit-quality perspective, though, AmEx also appears to be improving. Over the past year and a half, its Tier 1 capital ratio has jumped by 2.5 percentage points to a much healthier 12.3%. That's more dramatic than Citigroup (NYS: C) and its 2.2 percentage point increase, although Citi weighs in with a higher 13.5% ratio. Moreover, it's solidly ahead of Bank of America (NYS: BAC) , which saw its Tier 1 capital ratio go from 10.2% in the first quarter of 2010 to 11.5% in its most recent quarter.
With lingering issues from the financial crisis beginning to fade, AmEx can now focus on initiatives like its electronic wallet and prepaid card offerings. The market is highly competitive, so those products aren't guaranteed to succeed. But with the well-regarded AmEx brand behind them, they'll certainly give fellow card issuers and networks alike a run for their money.
AmEx is getting ready for a world where credit cards could become a thing of the past. But some stocks are even better placed to take advantage of changes in the way we pay. Watch this free video to discover why your credit card may soon be absolutely worthless -- but don't wait. Click here to see it while it lasts.
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At the time thisarticle was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Bank of America, Citigroup, and MasterCard. Motley Fool newsletter services have recommended buying shares of Visa and writing a covered strangle position in American Express. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
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