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Michael Fowlkes' Analyst Insights

InvestorsObserver
Options and ETF Analyst Writer
Michael Fowlkes
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January 17, 2017 - American Express Reports Fourth-Quarter Numbers January 19

What's Happening

Payment processor American Express (AXP) is scheduled to post its Q4 numbers January 19. The company will report its quarterly results after the market close, with the consensus calling for earnings of $0.99, down from $1.23 during the same period last year. The stock has trended strongly higher since the presidential election, and with the recent gains has appreciated 10.9% over the last year.

Technical Analysis

AXP was recently trading at $77.14, just $0.86 below its 12-month high and $26.87 above its 12-month low. Overall technical indicators for AXP are bullish with a strong upward trend. The stock has recent support above $73.50, and recent resistance below $78.00. Of the 21 analysts who cover the stock, five rate it a “strong buy”, 11 rate it a “hold”, and five rate it a “strong sell”. The stock receives S&P Capital IQ’s 3 STARS “Hold” ranking.

Analyst's Thoughts

Enthusiasm is high for the company, particularly following the recent presidential election. Not only will the company benefit from rising interest rates, but also from higher corporate spending, and expected tax reforms once president-elect Trump takes office. The company has strung together four consecutive earnings beats, and a fifth beat should allow the stock to build on its recent gains. AXP has a low P/E of 13.6, with analysts expecting earnings to fall 2.4% in 2017. The earnings decline has already been priced into the stock, so it should not result in a sell off as long as the company is able to report quarterly results that are at least in-line with the consensus.

Stock Only Trade

If you're looking to establish a long stock position in AXP, consider buying the stock under $77.00. Sell if it falls below $69.30 or take profits if it gets to $88.50.

Bullish Trade

If you want a bullish hedged trade on the stock, consider an April 60/65 bull-put credit spread for a 30-cent credit. That's a potential 6.4% return (23.8% annualized*) and the stock would have to fall 15.4% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an April 85/90 bear-call credit spread for a $0.55 credit. That's a potential 12.4% return (46.0% annualized*) and the stock would have to rise 10.9% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider an April $77.50 covered call. Buy AXP shares (typically 100 shares, scale as appropriate), while selling the April $77.50 call for a debit of $74.00 per share. The trade has a target assigned return of 4.7%, and a target annualized return of 17.9% (for comparison purposes only).

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