Up 21% YTD, Where Is American Express Stock Headed?

American Express’ stock (NYSE: AXP) has gained 21% YTD, as compared to the 10% rise in the S&P500 over the same period. Further, it is currently trading at $228 per share, which is 11% above its fair value of $205 – Trefis’ estimate for American Express’ valuation. 

Amid the current financial backdrop, AXP stock has seen extremely strong gains of 90% from levels of $120 in early January 2021 to around $230 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. Admirably, AXP stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 35% in 2021, -10% in 2022, and 27% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

 Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AXP see a strong jump?

The credit card giant underperformed the street estimates in the fourth quarter of 2023. It reported total revenues of $15.8 billion – up 11% y-o-y, driven by a 7% growth in the noninterest revenues and a 31% rise in the net interest income (NII). While the noninterest revenues benefited from higher card member spending, the NII was up due to an improvement in the net interest yield and a 17% increase in card member loans. On the cost front, provisions for credit losses witnessed an unfavorable build-up from $1 billion to $1.4 billion. Overall, It resulted in an adjusted net income of $1.9 billion – up 23% y-o-y.

The company’s top line grew 14% y-o-y to $60.5 billion in FY 2023. It was driven by a 10% rise in the noninterest revenues, followed by a 33% jump in the net interest income. That said, the provisions figure more than doubled in the year to $4.9 billion. However, the impact was somewhat offset by a drop in total expenses as a % of revenues from 77.8% to 74.5%. Altogether, the adjusted net income improved 12% y-o-y to $8.25 billion.

Moving forward, we expect the same trend to continue in the first quarter. Overall, American Express’ revenues are forecast to touch $66.25 billion in FY2024. Additionally, AXP’s adjusted net income margin is likely to remain around the same level as last year, leading to an adjusted net income of $9.1 billion. This coupled with an annual GAAP EPS of $12.83 and a P/E multiple of just below 16x will lead to a valuation of $205.

[1] Returns as of 4/2/2024
[2] Cumulative total returns since the end of 2016

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