American Express (AXP) Blasts to Record Highs as Delinquencies Remain Low

Stock (Symbol)

American Express (AXP)

Stock Price

$206

Sector

Data is as of

Expected to Report

Company Description

American Express Company is a globally integrated payments company.

The Company provides its customers with access to products, insights, and experiences that builds business.

It operates under four segments: U.S. Consumer Services (USCS), Commercial Services (CS), International Card Services (ICS), and Global Merchant and Network Services (GMNS). USCS offers travel and lifestyle services as well as banking and non-card financing products. CS offers payment and expense management, banking and non-card financing products. CS also issues corporate cards and provides services to select global corporate clients. ICS also provides services to international customers, including travel and lifestyle services, and manages certain international joint ventures and its loyalty coalition businesses. GMNS provides multi-channel marketing programs and capabilities, services and data analytics. It provides credit and charge cards to consumers, small businesses, mid-sized companies and corporations.

Sharek’s Take

American Express is a globally integrated payments company in providing credit and charge cards to individuals and businesses with high credit scores. The company is both a card issuer (like Chase and Citi) and a card network (like MasterCard and Visa). American Express’ integrated payments platform has direct relationships with Merchants and Card Members, creating a closed loop so Amex has direct access to information. The company can analyze info on spending to underwrite risk, reduce fraud and do targeted marketing. What makes American Express special is its Membership Rewards program, which include benefits such as airport lounge access, dining experiences, and other travel benefits. The company has been attracting younger, Millennial and Gen Z customers. In the US, these customers were more than 60% of new accounts in 2023. In addition, 75% of new Consumer Platnum and Gold accounts acquired in the US were from this group of individuals.

Here’s a short history of American Express:

• 1850 – American Express was founded as an express mail, freight forwarding business in Buffalo, NY.
• 1891 – The company introduced the Travelers Cheque to help adventurous and entrepreneurial customers traveling abroad feel more secure with their money.
• 1895 – Opens its Paris office, its first office outside North America.
• 1958 – American Express introduced its first charge card in the U.S and Canada.
• 1991 – Launches Membership Rewards, the worlds largest card-based rewards program.
• 1992 – AXP spins off credit card processor First Data, which has since merged with Fiserv.
• 2021 – American Express introduced its first business checking account product and new digital capabilities.

AXP engages in businesses comprising four operating segments:

• US Consumer Services (USCS):
  • This segment primarily issues proprietary consumer cards to US consumers and provides travel and lifestyle services.
  • Last qtr, this segment’s revenue net of interest expense was up 13% from a year ago.
  • Increase was due to higher interest income and increased cardmember spending.
• Commercial Services (CS):
  • This segment primarily issues proprietary cards and services to corporate and small businesses in the US and select global corporate clients. The services include payment and expense management and non-card financing solutions.
  • Last qtr, revenue net of interest expense was up 7% from a year ago.
  • Increase was driven by higher interest income.
• International Card Services (ICS):
  • This segment primarily issues proprietary cards and travel and lifestyle services outside the US.
  • Last qtr, this segment’s revenue net of interest expense rose 12% vs. a year ago.
  • Growth was driven by increased card member spending and higher card fee revenue.
• Global Merchant Network Services (GMNS):
  • This segment operates a global payments network that processes and settles card transactions, acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics.
  • Last qtr, revenue net of interest expense was up 10% from a year ago.
  • Growth was driven by higher merchant-related revenues.

American Express is a reasonably safe stock that is part of the Dow Jones Industrial Average. This stock does have some credit risk, as the company holds the credit card loans, unlike Visa and MasterCard. There have been years during the past decade when profits haven’t hit All-Time highs. Thus, this stock doesn’t have great certainty as MasterCard and Visa possess. AXP spent $5.3 billion on stock buybacks and dividends in 2023. The dividend was just increased 15% to $2.80 on an annualized basis. AXP has an Estimated Long-Term Growth Rate of 15% and a dividend yield of 1%. I used to consider this a ten percent grower (Est. LTG + yield) long term, but now management aspirations are mid-teens profit growth so I eel this is a 15% grower. AXP is part of the Conservative Portfolio. With a P/E of jsut 16 this stock has room to move higher.

One Year Chart

The stock broke out in a big way recently. Now I don’t know where its headed next. But with a P/E of only 16, AXP seems like a bargain.

Qtrly profit growth has been great the past two quarters. Estimates for next quarter are good too (+23%) but that’s because comparisons from the year-ago period are easy (-12%).

Analysts have an Est. LTG of 15% on this stock, same as last qtr.

Earnings Table

AXP’s Billed Business grew 6% and was driven by 5% growth in Goods & Services spending and 9% growth in Travel & Entertainment spending. Restaurant spending remains AXP’s largest T&E category while airline spending growth slowed in the quarter.

Annual Profit Estimates are higher  this qtr. For 2024, management expects revenue growth of 9% to 11%.

Qtrly profit Estimates are for 23%, 11%, 3%, and 24% growth the next 4 qtrs. Analysts estimate AXP’s revenue will grow 10% next quarter.

Fair Value

This stock currently has a P/E of 16 when we look at 2023 profit estimates.

My Fair Value is a P/E of 19, and if we use 2024 profit estimates, that equates to a $243 stock, which is around 18% higher than the recent quote.

I honestly think this stock is worthy of a 22 P/E. But I dodn’t want to jump right in and place my Fair Value at that valuation. Let’s see if the company can earn it. Notice the P/E has been in the mid-teens much of the past decade.

Bottom Line

American Express (AXP) has had an erratic profit history. Also, the stock hasn’t been a steady grower the past decade. And below 10% profit growth/stock growth during the last ten years is good but not great.

AXP is a faster growing company than it used to be, and the stock should be rewarded with a higher P/E ratio. I imagine the P/E could rise to 20 over time.

AXP stays at 6th in the Conservative Growth Portfolio Power Rankings.

Power Rankings

N/A

Aggressive Growth Portfolio

N/A

Conservative Growth Portfolio

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