Barrons had an interesting piece on American Express (AXP) today, suggesting Warren Buffett may come to the aid of the credit card company.
Warren Buffett and American Express have a long relationship and a deep one as well, with Buffett’s Berkshire Hathaway owning about 13% of the company already. The thought is that Mr. Buffett may be willing to invest more dollars into the company or potentially use stock to acquire the company outright. That would not be the norm, as Berkshire Hathaway prefers using cash in its transactions.
We have been following the follies of American Express, and have continued to warn investors that the company made some badly-timed decisions that has put the franchise in a tough position. Management’s timing to expand the credit card portfolio in 2004 put the wheels in motion on the huge credit card losses the company is now dealing with.
The Bottom LineMr. Buffett will likely demand terms similar to his Goldman Sachs (GS) deal, but that is if he feels the bet should be made. With all the deteriorating financials out there, and Berkshire themselves coming off a disappointing quarter, the timing of any American Express deal may be far off and perhaps unlikely. One thing we do know is that there are no signs that the company will be turning around anytime soon, so investors may need to put this name on the shelf until the spending slowdown and the credit card loan defaults trends improve. The company has a dividend yield of 3.60%, based on Friday’s closing stock price of $19.99.
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