Yesterday, American Express Co. (AXP), also known as AmEx, sold long-term notes worth C$725 million in two tranches, according to Bloomberg.
The first set of floating-rate notes were worth C$325 million maturing in 3 years, due date being June 6, 2014. Issued at a price of C$100.00, the settlement of these notes is dated for June 6, 2011.
Meanwhile, the second tranche of notes were worth C$400 million– maturing in 5 years, due date being June 3, 2016. Issued at a price of C$99.973, the coupon rate is fixed at 3.6% for these notes. The settlement is also scheduled for June 6, 2011.
AmEx appointed BMO Capital Markets and RBC Capital Markets as the book-running managers for the note offering.
Estimate Trend Revision
Over the last 30 days, one of the 15 analysts covering the stock has increased its estimates for the second quarter of 2011, while no downward revisions have been witnessed. Currently, the Zacks Consensus Estimate for second quarter is operating earnings of 98 cents per share, which would be up by 16.7% from the year-ago quarter.
The higher number of upward estimate revisions for the second quarter indicates a likelihood of upward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 5.24%. This implies that AmEx has surpassed the Zacks Consensus Estimate by 5.24% over that period.
The downside potential for the estimate for the second quarter, essentially a proxy for future earnings surprises, currently stands at 2.04%.
Our Take
Last week, Moody’s Investor Service of Moody’s Corp. (MCO) raised its ratings outlook onAmEx and its subsidiaries to ‘stable’ from ‘negative.’ The rating agency also affirmed its status 'A3' rating on AmEx’s long-term debt, placing it at an upper-medium level of the investment grade.
AmEx has pulled itself out of the recession more quickly than its rivals, owing to its creditworthy customers. Moreover, less reliance on revolving credit and back-end fees along with fairly balanced debt maturities has helped gain competitive advantage while also improving its overall risk profile. Besides, there has been an impressive recovery in credit trends, with increased card spending and strong billings over the last few quarters.
However, concerns hover around the company’s funding, for which AmEx is mostly dependent on the capital market rather than the comparably rated banks. About 66% of the company’s funds source come from unsecured debt and securitization, which again poses a risk on AmEx’s capital position in case of a volatile economy bringing in another credit thump.
On Wednesday, the shares of AmEx closed at $49.91, down 3.3%, at the New York Stock Exchange.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
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