Not Time To Buy Amex Yet

In the wake of American Express’ results, and dour commentary, no one should really be surprised that the stock is down 12 percent in an otherwise lofty rise for the markets as a whole.

But the questions to ask come naturally: Is 12 percent enough? Is it time to buy?

In a word, or two: probably not.

Last night threw some cold water on the thesis that payments, at least globally, can weather a slowdown in a pocket or two or three – even if you’re Amex, a brand name among brand names. The signs are there that Amex is facing a triple threat: company-specific issues, slowing macro and currency headwinds (a typical bane of U.S. companies operating abroad). The first two pillars of misery are the most important.

It’s been documented, by now, how Chenault et al must brace for waves of competition that have been coming, and will be coming, from nimble upstarts. And the CEO said, in reference to the macro clouds gathering, in remarks last night on the earnings call that companies have started to trim back on the lowest hanging fruit of operating expenses, such as “T&E” expenses. That presages a slowdown that may be widespread and may even — if a true recession looms — touch down hard on the heretofore resilient consumer.

Such caution and confluence of headwinds means that revenues are likely to be harder to come by, given the all-important card business. And that hints that the $1 billion in cost savings may not be enough to keep margins afloat. Wall Street, by and large, does not like to see companies try to cut their way to earnings growth, or at least earnings stability, as the implication is that there’s nothing really coming to bear on the growth front.

And what about the earnings? 9x earnings, both forward and backward looking seems cheap, or cheapish, on an absolute basis. But the numbers were a bit muddied last night, with the hint that the core, or organic earnings, will actually decline, once the boosts from portfolio sales are off the table. Given the stock drop intraday, it’s unlikely many people believe the guidance that is in place. The Street, in its consensus earnings, which will almost certainly try to back out core growth rates, will be a more likely force to bring the stock lower. The multiples offer no floor if there is doubt over the earnings themselves.

Other metrics? Amex has had a nice history of returning cash to holders, but the counter argument there is that companies throw money to shareholders, at times, when there is nothing to invest in. The dividend yield is north of 1 percent, but hardly enticing in an environment marked by rising rates. The slice in market cap, with a current $54 billion level, could have a way to go, especially if we start to see downgrades from the Street. There’s been at least one shot across that bow, with a downgrade from KBW, which took the rating to market perform from outperform. Watch out if bigger houses on the Street throw in their respective towels.

One other nasty tell comes from the buy side, amid reports that ValueAct, the activist investor that had amassed a 1.1 percent stake in Amex, has walked away, selling those shares in the fourth quarter. Talk about a quick about face: that stake had been taken when the stock was at roughly $75, and through the middle of last year. Though 1.1 percent stakes are hardly needle moving, one would look for buying from an activist investor with all of those clouds brewing, setting the stage for demands for new strategy and new management to be heard.

The old adage is to “buy when there’s blood in the streets.” But if a few more veins are left to be opened, then it’s best to wait.