American Express Company (AXP)

Equity
US
Financial Services

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RISK

RETURN

Key risk factors

Strong trading liquidity

Limited default risk

Modest price volatility

Key return factors

Strong growth

Greatly overvalued vs peers

Decent dividends

Corporate actions & dividendsDividend of USD 0.700 with an ex-date of 05 Jul 2024.

Company profileAmerican Express Company, together with its subsidiaries, provides charge and credit payment card products, and travel-related services worldwide. The company operates through three segments: Global Consumer Services Group, Global Commercial Services, and Global Merchant and Network Services. Its products and services include payment and financing products; network services; accounts payable expense management products and services; and travel and lifestyle services. The company's products and services also comprise merchant acquisition and processing, servicing and settlement, point-of-sale marketing, and information products and services for merchants; and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, mid-sized companies, and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams, and direct response advertising. American Express Company was founded in 1850 and is headquartered in New York, New York.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

18.90

18.20

PEG

1.90

P/B

5.90

4.50

P/CR

2.70

P/RIBPT

1.80

P/IBPT

26.80

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, Editor's note: P/CR is Price to Core Revenue (CR), similar to P/S for corporates. CR = Net interest income + Net fee & commission income. P/IBPT is Price to Income Before Provisioning and Taxes (IBPT), similar to EV/EBITDA for corporates. IBPT = Core revenue -- Operating expenses + Non-recurring income. P/RIBPT is Price to Recurring Income Before Provisioning and Taxes (RIBPT), similar to P/FCF for corporates. RIBPT = Core revenue -- Operating expenses.

Performance: Decent

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 33ppts over past six months and grown 3ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.

Analyst view: Somewhat favourable

The average target price is 221 and suggests 6% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 267.1. This translates into 13% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 175.0. This is equivalent to 26% downside potential in the worst case.

Profitability: Average

RoE

American Express Company reported a return on equity (RoE) of 31.5% in the last 12 months, up from 31.3% in FY23. The market consensus projects a RoE of 27.5% in FY24, again ahead of the peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 3.4% in the last 12 months, a decrease from 3.4% in FY23. The market analysts predict that RoA will be 2.9% in FY24, again stronger than the peers.

C/I

In the last 12 months, the cost-to-income ratio (C/I) declined to 72.8%, above the peers. The consensus estimate for FY24 for CI is 67.7%, again above of the peers.

Growth: Strong

Revenue

EBITDA

EPS

Free cash flow

AXP reported revenue of USD 63 999mn in the last 12 months, up 6% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 8% from FY23 to USD 12.16. Market expects EPS to reach USD 12.99 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA growth has been steady. This all contributed to very fast EPS growth (strongly positive). FCF has grown rapidly, much better than EBITDA. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF. On the positive side, revenue dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The solvency (credit quality) of AXP is strong. The credit profile rests on (a) a sufficient capital position, (b) moderate asset quality, (с) a sufficient corporate governance framework, (d) excellent earnings power and cost efficiency, and (e) its moderate liquidity profile.

Volatility: Modest

In normal market circumstances, AXP is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. Finally, it may be affected by inherently volatile sector.

Stress-test: Modest

In highly turbulent market conditions, AXP is as volatile as an index. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low. At the same time, due to inherently volatile sector, its maximum losses could be limited.

Selling difficulty: Very low

AXP boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.