Critical Review: American Express (AXP) versus NetSpend (NTSP)

American Express (NYSE: AXP) and NetSpend (NASDAQ:NTSP) are both finance companies, but which is the superior business? We will contrast the two companies based on the strength of their analyst recommendations, risk, profitability, earnings, institutional ownership, valuation and dividends.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for American Express and NetSpend, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
American Express 3 15 11 0 2.28
NetSpend 0 0 0 0 N/A

American Express currently has a consensus price target of $91.02, suggesting a potential downside of 7.33%.

Insider & Institutional Ownership

83.4% of American Express shares are owned by institutional investors. 0.7% of American Express shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares American Express and NetSpend’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
American Express 14.48% 22.73% 2.90%
NetSpend N/A N/A N/A

Valuation and Earnings

This table compares American Express and NetSpend’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
American Express $32.12 billion 2.65 $5.41 billion $5.19 18.92
NetSpend N/A N/A N/A $0.44 N/A

American Express has higher revenue and earnings than NetSpend. NetSpend is trading at a lower price-to-earnings ratio than American Express, indicating that it is currently the more affordable of the two stocks.

Dividends

American Express pays an annual dividend of $1.40 per share and has a dividend yield of 1.4%. NetSpend does not pay a dividend. American Express pays out 27.0% of its earnings in the form of a dividend. NetSpend has raised its dividend for 5 consecutive years.

Summary

American Express beats NetSpend on 9 of the 11 factors compared between the two stocks.

American Express Company Profile

American Express Company, together with its subsidiaries, is a global services company. The Company’s principal products and services are charge and credit card products, and travel-related services, which are offered to consumers and businesses around the world. Its segments include the U.S. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global Commercial Services (GCS) and Global Merchant Services (GMS). The USCS includes the U.S. Consumer Card Services business and consumer travel services in the United States. The ICNS includes the International Consumer Card Services business, Global Network Services business and consumer travel services outside the United States. The GCS includes the Global Corporate Payments business, small business services businesses in the United States and internationally, financing products and foreign exchange services operations. The GMS includes the Global Merchant Services business and global loyalty coalition businesses.

NetSpend Company Profile

NetSpend Holdings, Inc. (NetSpend) is a provider of general-purpose reloadable prepaid debit cards (GPR) cards, and related alternative financial services to underbanked consumers in the United States. NetSpend’s GPR cards are tied to the Federal Deposit Insurance Corporation (FDIC)-insured depository accounts and can be used to make purchase transactions at any merchant that participates in the MasterCard, Visa or PULSE networks and to withdraw funds at participating automated teller machines (ATMs). The Company also offers to its cardholders direct deposit, interest-bearing savings accounts, bill pay and card-to-card transfer functionality, personal financial management tools and online and mobile phone card account access. As of December 31, 2010, the Company marketed its GPR cards through approximately 750 retail distributors at approximately 39,000 locations. As of August 21, 2010, the Company ceased marketing gift cards.

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