American Express’ stock (NYSE: AXP) has gained 7% YTD as compared to the 16% rise in the S&P500 over the same period. Further, it is currently trading at $158 per share, which is 13% below its fair value of $182 – Trefis’ estimate for American Express’ valuation.
Interestingly, American Express stock had a Sharpe Ratio of 0.5 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.29 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
The credit card giant posted mixed results in the second quarter of 2023, with earnings beating the consensus but revenues missing the mark. It reported total revenues of $15.05 billion – up 12% y-o-y, driven by an 8% growth in the noninterest revenues and a 32% jump in the net interest income (NII). The NII was up due to higher interest rates and an increase in revolving loan balances. Similarly, the noninterest income benefited from improvement in billed business, processed volumes, and premium card portfolios. On the cost front, provisions for credit losses witnessed an unfavorable increase from $410 million to $1.2 billion. This resulted in a net income of $2.17 billion – up 11% y-o-y.
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The company’s top line grew 17% y-o-y to $29.34 billion in the first half of FY 2023. It was driven by a 13% growth in the noninterest revenues, followed by a 34% jump in the net interest income. Despite this, the net income figure has actually decreased 2% y-o-y to $3.99 billion, mainly due to a significant rise in the provisions figure.
Moving forward, we expect the growth trend to continue in the third quarter. Overall, American Express’ revenues are estimated to touch $60.75 billion in FY2023. Additionally, AXP’s adjusted net income is likely to remain around $7.96 billion. This coupled with an annual GAAP EPS of $11.13 and a P/E multiple of just above 16x will lead to a valuation of $182.
|S&P 500 Return||-1%||16%||99%|
|Trefis Reinforced Value Portfolio||-1%||30%||561%|
 Month-to-date and year-to-date as of 9/7/2023
 Cumulative total returns since the end of 2016