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Why American Express Company Will Keep Charging in 2014

By Brian D. Pacampara, CFA - Feb 10, 2014 at 10:39AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of American Express Company (AXP -1.34%) gained 1.5% this morning after Morgan Stanley upgraded the credit card giant from Neutral to Overweight.

So what: Along with the upgrade, analyst Betsy Graseck raised his price target to $100 (from $90), representing about 15% worth of upside to yesterday's close. While contrarians might be turned off by Amex's solid share-price over the past year, Graseck thinks there's more room to run given the strong tailwinds -- growth potential of OptBlue and the improving economy -- working in its favor.

Now what: According to Morgan, Amex's risk/reward trade-off is pretty attractive at this point. "We believe Amex can win over small merchants with its OptBlue program, boosting US acceptance closer to [Visa (V -1.31%)/MasterCard (MA -1.10%)]," noted Graseck. "Look for 7%/14% rev/EPS CAGR through 2016 as Amex takes share." When you couple that positive outlook with Amex's seemingly reasonable forward P/E of 14, it's tough to disagree with Morgan's upgrade. 

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Stocks Mentioned

Mastercard Incorporated Stock Quote
Mastercard Incorporated
MA
$332.22 (-1.10%) $-3.68
Visa Inc. Stock Quote
Visa Inc.
V
$197.37 (-1.31%) $-2.62
American Express Company Stock Quote
American Express Company
AXP
$154.00 (-1.34%) $-2.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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