Marcial: American Express: A Beaten-Down Bargain?

The charge-card giant has seen its shares tumble along with the rest of the financial services group—an undeserved fate, according to some pros

American Express—52-week stock price

by Gene Marcial

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Hordes of investors are bailing out of American Express (AXP): Its stock has cratered from a 52-week high of 63.63 on Oct. 11, 2007, to 38 on Sept. 5. Some of the major institutions, such as Fidelity Management, Capital Research Global, and Oppenheimer Funds (OPY), have unloaded huge amounts of stock. But here's one piece of advice: Don't follow the crowd rushing for the exits. Go the opposite way and grab the opportunity to buy shares of the credit-card behemoth at its current heavily discounted price.

AmEx is a vivid example of how a highflier can plunge no matter how fine a company it is. But that's how the market creates tempting opportunities. In AmEx's case, the company became partly responsible for its own market woes when CEO Kenneth Chenault frankly warned analysts in early August that the slowing economy, high energy costs, and wealth shrinkage due to the housing meltdown indicated tough times ahead.

That prompted analysts to downgrade the stock. Of the 19 who follow AmEx, three quickly changed their recommendation to sell and 10 to neutral. But not everyone went negative: Six analysts have kept their buy rating, with 12-month price targets ranging from 40 to 55.

Sanguine bulls

Here's a sampling of what those with a cautious outlook have to say. "The wide-ranging effects of the housing downturn are highlighted by the worsening of U.S. Cards' [an AmEx division] credit quality," said Meredth Whitney of Oppenheimer in a note to clients. As a result, she says, AmEx's affluent customers "have seen credit deterioration beyond expectations." She rates AmEx "perform," which is equivalent to staying neutral on the stock. Also cautious is Kenneth Bruce, an analyst at Merrill Lynch (MER) who has done banking for AmEx. He rates the stock underperform and warned clients that it hasn't yet fully reflected these problems.