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Friday, October 20, 2006

Earnings Cheat Sheet- American Express (AXP)

By Yaser Anwar, CSC of Equity Investment Ideas

Analysts have been nudging up their earnings estimates for the financial-services firm, as consumers -- especially of the ilk that carry Amex cards -- barely missed a beat during the quarter despite fears that high energy costs and a slump in the housing market would stifle spending.

Earnings Outlook: Analysts surveyed by Thomson First Call expect earnings of 76 cents a share, compared with 69 cents excluding items in last year's third quarter. Net income in that period was 82 cents a share.

Revenue Outlook: Analysts expect $6.81 billion, up from $6.07 billion a year earlier.

Key Issues:

• Charge it: The fomula is simple: multiple average cards outstanding for the quarter (up 10% to 76.1 million) by spending per card (up 5.4% to $1,882) and Amex's billed business rose 16% to $141.6 billion, according to Sandler O'Neill estimates.

• Credit losses: Creditors' charge-off rates have been unusually low ever since a new personal-bankruptcy law took effect last year; analysts see at most a slight rise from the 3.4% Amex recorded for the second quarter.

• Networking: Lehman Brothers says investors are warming to the growth prospects of the Amex unit that includes business generated when other banks issue cards processed on its proprietary system. Network-and-merchant earnings rose 20% to $200 million in the second quarter.

• Expenses: Amex has stepped up spending on promotions and its rewards programs to historically high levels, according to Sandler O'Neill analyst Laura Kaster, who estimates marketing expense in the third quarter rose nearly 12% year over year to $1.7 billion.

Note: This analysis has been re-published from WSJ's Earnings Cheat Sheet & has been compiled by David Gaffen. Due to midterm exams I've been unable to post today, will be back next week with fresh analysis, thanks for reading & have a great weekend.

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