American Express’ stock (NYSE: AXP) is down 2% YTD, outperforming the 17% drop in the S&P500 over the same period. Further, it is currently trading at $161 per share, which is 18% below its fair value of $196 – Trefis’ estimate for American Express’ valuation. The credit card giant topped the consensus estimates of revenues and earnings in the first quarter. It posted total revenues of $11.7 billion – up 29% y-o-y. It was driven by a 32% increase in the total non-interest income, followed by a 20% rise in the net interest income (NII). The non-interest income primarily grew due to higher discount revenues and net card fees. While the growth in discount revenue was largely driven by a 34% rise in the billed business, the net card fees benefited from an increase in premium card portfolios. Similarly, lower average debt & interest rates on deposits and higher average cardmember loan balances helped the NII. However, despite the growth in the top line, the adjusted net income was down 6% y-o-y to $2.1 billion. This was because of an increase in total expenses as a % of revenues.
The company’s revenues increased 17% y-o-y to $42.4 billion in 2021. It was driven by a 23% growth in the non-interest income, partially offset by a 3% drop in the NII. The growth in discount fees (26%) and net card fees (11%) were the two main drivers of non-interest income in the year. Notably, the implied global billed business increased 24% y-o-y, led by a recovery in the economic conditions and easing of Covid-19 related restrictions across the world. On the flip side, the NII suffered due to a lower interest rate environment. All in all, the firm reported a 161% jump in the adjusted net income to $7.9 billion, primarily due to a favorable decrease in the provisions for credit losses from $4.7 billion to -$1.4 billion.
The recovery in consumer spending levels is likely to drive growth for the company. Further, the improvement in the benchmark interest rates by the Fed is anticipated to support the NII. Overall, American Express’ revenues are forecast to touch $50.4 billion in FY2022. Additionally, AXP’s adjusted net income margin, which increased from 8.4% to 18.7% in 2021, is likely to normalize around 14.4% in 2022, leading to an adjusted net income of $7.3 billion. This coupled with an annual EPS of $9.72 and a P/E multiple of just above 20x will lead to the valuation of $196.
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|S&P 500 Return||-4%||-17%||78%|
|Trefis Multi-Strategy Portfolio||-5%||-21%||209%|
 Month-to-date and year-to-date as of 5/26/2022
 Cumulative total returns since the end of 2016