A Closer Look At Our $105 Price Estimate For American Express

by Trefis Team
-11.40%
Downside
124
Market
110
Trefis
AXP
American Express Company
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American Express (NYSE:AXP) saw its shares cross the $100 level for the first time earlier this year – representing a remarkable rally in share price for the company from around $50 in early 2016, when the negative impact of the Costco portfolio sale became clear to investors. While a part of these share price gains can be attributed to an improved economic outlook under the new U.S. tax regime, most of the gains are a result of American Express’ efforts over 2017 to regain lost ground in its core affluent segment. Although the company’s shares have slid lower over recent weeks, our fair value estimate for AmEx’s shares is around $105.

We arrive at this price estimate using our interactive model for American Express, which is based on just 6 core metrics for the company:

  • Average Card Balances for Amex over the year, which are expected to continue the strong growth trajectory
  • Net Interest Income as % of Card Balances, which should benefit from the ongoing Fed rate hike

  • Total Transaction Volume across Amex’s consumer, commercial and merchant services operations
  • Fees as % of Transaction Volume, which shows a gradual downward trend over the years due to competitive pressure in the payment industry

  • Income Margin, which should gain considerably from lower corporate tax rates

  • P/E Ratio of 14.5, which is comfortably in the P/E ratio range of 11-17 for most consumer finance firms

These core forecasts lead to our $105 price estimate for American Express’ stock, which is nearly 10% ahead of the current market price.

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