American Express Stock Is Up 17% YTD, What To Expect From Q1?

American Express (NYSE: AXP) is scheduled to report its fiscal Q1 2024 results on Friday, April 19, 2024. We expect American Express to top the consensus estimates of revenues and earnings. The credit card giant missed the consensus estimates in the last quarter. It reported total revenues of $15.8 billion, which was 11% more than the previous year’s figure. The top line benefited from a 7% increase in the noninterest revenues and a 31% jump in the net interest income (NII). Its key drivers were improvement in card member spending, card member loans, and net interest margin. We expect the same trend to continue in Q1. Our interactive dashboard analysis on American Express’ Earnings Preview has more details. 

Amid the current financial backdrop, AXP stock has seen extremely strong gains of 85% from levels of $120 in early January 2021 to around $220 now, vs. an increase of about 35% 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?

Our forecast indicates that American Express’ valuation is $205 per share, which is 6% below the current market price of close to $218. 

(1) Revenues to top the consensus estimates

American Express’ revenues grew 14% y-o-y to $60.5 billion in FY 2023. 

• Non-interest revenues contribute more than 80% of the total revenues. It rose by 10% y-o-y. We expect the same trend to drive the Q1 results.
• The net interest income (NII) increased 33% y-o-y over the same period. It was driven by higher net interest rate yield and card loan growth. We expect the Q1 results to be on similar lines.
• Overall, we forecast American Express’s revenues to touch $66.25 billion in FY2024.

Trefis estimates American Express’s fiscal Q1 2024 revenues to be around $15.96 billion, marginally above the $15.79 billion consensus estimate. 

(2) EPS to beat the street estimates

American Express Q1 2024 adjusted earnings per share (EPS) is expected to be $3.02 per Trefis analysis, almost 2% above the consensus estimate of $2.95. The adjusted net income increased 12% y-o-y to $8.25 billion in FY 2023. While the provisions figure more than doubled to $4.9 billion, the impact was more than offset by higher revenues and a favorable drop in the total expenses as a % of revenues from 77.8% to 74.5%. We expect the same trend to continue in the first-quarter results. Overall, American Express’s is likely to report an annual GAAP EPS of $12.83 in FY2024.  

(3) The stock price estimate is 6% lower than the current market price

We arrive at American Express’ valuation, using an EPS estimate of around $12.83 and a P/E multiple of just below 16x in fiscal 2024. This translates into a price of $205, which is 6% below the current market price.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

[1] Returns as of 4/17/2024
[2] Cumulative total returns since the end of 2016

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