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- CNBC’s Jim Cramer said American Express’ post-earnings sell-off has created a buying opportunity.
- He said management’s decision to reinvest profits rather than ramp up buybacks will create more value for shareholders.
CNBC’s Jim Cramer said Monday American Express is prioritizing long-term growth over boosting earnings per share — and that’s exactly why the stock is a buy.
“American Express is down more than 13% from its all-time highs set late last year,” the “Mad Money” host said. “I think it’s a terrific opportunity in one of the best-run companies on earth.”
Shares of the payments giant fell more than 4% Friday after the company beat earnings expectations but maintained its full-year guidance. Although the stock rebounded 3% Monday, it remains below its pre-earnings level and roughly 13% off its record high on Dec. 11. Cramer said the pullback fits a familiar pattern that has repeatedly created attractive entry points for long-term investors.
“I think you’re getting a terrific buying opportunity,” he said.
Cramer said investors are placing too much weight on the unchanged earnings outlook and not enough on management’s decision to reinvest profits into the business. During the earnings call, CEO Steve Squeri said American Express is choosing to invest in expanding cardholder benefits and other growth initiatives rather than accelerating share repurchases, which would have boosted EPS more quickly, because “in the long run, it is the [option] that creates the most value for our shareholders.”
The strategy builds on last year’s refresh of the company’s Platinum card, which management said has already produced encouraging results. The card carries a hefty annual fee, but offers expanded travel, dining, and lifestyle benefits aimed at affluent customers.
Cramer said those investments are already paying off. American Express generated a 36% return on equity during the quarter, which he said is among the highest in the financial sector. Return on equity measures how well a company uses money from its shareholders to grow net income. Squeri also said “six months into the year, we’re seeing stronger momentum than we expected.”
“Based on Steve Squeri’s track record, I think he deserves the benefit of the doubt here, which is why I’d be a buyer,” Cramer said.
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