Up 25% YTD, What To Expect From American Express Stock?

-16.94%
Downside
211
Market
175
Trefis
AXP: American Express Company logo
AXP
American Express Company

American Express’ stock (NYSE: AXP) has gained 25% YTD, as compared to the 24% rise in the S&P500 over the same period. Further, it is currently trading at $185 per share, which is just above its fair value of $182 – Trefis’ estimate for American Express’ valuation

Amid the current financial backdrop, AXP stock has seen extremely strong gains of 55% from levels of $120 in early January 2021 to around $185 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Admirably, AXP stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 35% in 2021, -10% in 2022, and 25% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 (YTD). In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could AXP see a strong jump?

The credit card giant posted mixed results in the third quarter of 2023, with earnings beating the consensus but revenues missing expectations. This was despite a 13% y-o-y rise in the total revenues to $15.38 billion. The increase was driven by a 9% gain in non interest revenues, followed by a 34% jump in the net interest income (NII). The non-interest revenues benefited from growth in billed business, premium card portfolios, and foreign exchange-related income. Similarly, the NII was up because of higher interest rates and improvement in revolving loan balances. On the cost front, provisions for credit losses witnessed an unfavorable increase from $778 million to $1.23 billion. However, the impact was somewhat offset by lower non interest expenses as a % of revenues. It resulted in a net income of $2.45 billion – up 30% y-o-y.

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The company’s top line grew 16% y-o-y to $44.72 billion in the first nine months of FY 2023. It was driven by a 12% growth in the noninterest revenues, coupled with a 34% rise in the net interest income. That said, the provisions figure increased from $1.15 billion to $3.47 billion over the same period. Overall, the net income figure improved 8% y-o-y to $6.44 billion.

Moving forward, we expect the same momentum to continue in the fourth quarter. Overall, American Express’ revenues are forecast to touch $60.75 billion in FY2023. Additionally, AXP’s adjusted net income margin is likely to see a slight dip in the year, leading to an annual GAAP EPS of $11.13. This coupled with a P/E multiple of just above 16x will lead to a valuation of $182.

 Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 AXP Return 8% 25% 149%
 S&P 500 Return 4% 24% 112%
 Trefis Reinforced Value Portfolio 8% 38% 609%

[1] Month-to-date and year-to-date as of 12/22/2023
[2] Cumulative total returns since the end of 2016

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