American Express’ stock (NYSE: AXP) is down 7% YTD, outperforming the 16% drop in the S&P500 over the same period. Further, it is currently trading at $152 per share, which is 15% below its fair value of $178 – Trefis’ estimate for American Express’ valuation. The credit card giant surpassed the consensus estimates of revenues and earnings in the second quarter. It posted total revenues of $13.4 billion – up 31% y-o-y. The discount revenues increased 30% y-o-y, thanks to a 27% growth in the billed business, followed by a 15% increase in the net card fees. Further, the service fee and other revenues improved 79% y-o-y due to higher travel-related and foreign exchange-related revenues. Along with this, the net interest income (NII) rose by 30% in the quarter driven by loan growth. That said, despite the growth in the top line, the net income declined 14% y-o-y to $1.96 billion. This was because of an unfavorable increase in the provision for credit losses and higher operating 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 26% growth in the discount fees and an 11% rise in net card fees. The improvement was due to a recovery in the consumer spending levels and easing of lockdown restrictions, leading to higher transaction volumes. That said, the NII suffered in the year due to a lower interest rate environment. In addition to the revenue growth, the firm posted a significant drop in the provisions for credit losses, resulting in an adjusted net income of $7.9 billion (up 161%).
The top-line continued its growth trajectory in the first two quarters of 2022. Notably, total revenues for the first half of the year increased 30% y-o-y to $25.1 billion. While the non-interest revenues grew on the back of higher transaction and network volumes, the NII also witnessed a 25% y-o-y growth driven by higher outstanding loan balances. We expect the same trend to continue in the subsequent quarters. Overall, American Express’ revenues are estimated to touch $50.5 billion in FY2022. Additionally, AXP’s adjusted net income margin, which increased from 8.4% to 18.7% in 2021, is likely to normalize to around 14.4% in 2022. It will likely lead to an adjusted net income of $7.3 billion and an annual EPS of $9.65. This coupled with a P/E multiple of just above 18x will lead to the valuation of $178.
With inflation rising and the Fed raising interest rates, American Express has fallen 7% this year. Can it drop more? See how low can American Express stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||6%||-16%||80%|
|Trefis Multi-Strategy Portfolio||9%||-16%||234%|
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 Month-to-date and year-to-date as of 7/28/2022
 Cumulative total returns since the end of 2016