Morgan Stanley Reports Reserve Bleed Drives Beat On American Express

According to Morgan Stanley, American Express AXP reserve bleed drives the beat. Morgan Stanley said that it expects Pre-tax Pre-Provision Operating Profit (Ppop) should improve going forward as loans grow, top line benefits from recent investment spend and management pulls back on incremental investment spend. “We expect AXP to manage down their expenses, and forecast the expense ratio down from 77.1% in 1Q11 to 71.3% by 4Q. AXP is trading at 11x our 2012 eps estimate (vs historical 16-17x range). Stock is cheap and next catalyst is Monthly Master Trust on May 15. Our price target of $53 implies a 12.5x 2012 PE and a 13% absolute return.” American Express closed yesterday at $47.00.