Is American Express Heading In the Right Direction?

With shares of American Express Company (NYSE:AXP) trading at around $61.08, is AXP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

American Express reported Q4 EPS of $1.09 versus an expectation of $1.06. Revenue came in at $8.10 billion, which was in-line with estimates. If you include charges for restructuring, membership rewards, and cardmember services, then EPS really comes in at $0.56. However, this is still positive news. It’s usually not good news when a company has extra expenses, but in this case, it shows discipline. Any company that takes a long-term approach in this unpredictable economy is setting itself up for a manageable situation in the future.

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The biggest expense will be a restructuring charge of $400 million. The majority of this will go toward severance pay, but it will also go toward future operating expenses, necessary adjustments for more consumers moving online for banking, and growth initiatives. The second-largest expense will be $342 million for membership rewards. Coming in a distant third is cardmember services with a cost of $153 million. You might have noticed severance pay above. That’s because American Express is planning on cutting 5,400 jobs. The company has stated that it will add jobs as well, but there will be a drop of 4 to 6 percent for jobs overall in 2013. Cardmember spending rose 8 percent in Q4. There was a slight dip due to Hurricane Sandy, but spending rebounded nicely…