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First published on Simply Wall St News
American Express Company (NYSE:AXP) has been keeping up steady stock performance and in the last 5 years the stock is up 125% just on price increase, but closer to 150% if we include dividends. In this article, we will go over the earnings performance, implied valuation and see what analysts are expecting from the company in the next few years.
View our latest analysis for American Express
Earnings & Outlook
The company released earnings last week, here are the highlights:
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Q1 revenues were US$12b, up 21% from Q1 2021
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Net income came at US$2.07b, down 6.2% from Q1 2021
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EPS of US$2.73 were also better than expected, beating analyst predictions by 11%
By looking at future analyst estimates, we can see if the company has further growth potential. It seems that revenues are expected to rise, however investor's earnings are expected to maintain roughly current levels.
Taking into account the latest results, the current consensus from American Express' 20 analysts is for revenues of US$50.3b in 2022, which would reflect a decent 9.8% increase in its sales over the past 12 months. Management also reaffirmed their outlook and posts revenue growth guidance between 18% and 20% for 2022 - equating to US$52b, slightly above analysts' estimates for 2022.
Earnings per share are expected to dip 5.6% to US$9.75 in the same period. On a net income basis, analysts are expecting US$7.359b in 2023, US$8.25b in 2024 and US$8.924b.
Valuation
Given that the expected future earnings are stable, a Price to Earnings (PE) ratio may be an appropriate way with which we can compare how much the market is paying for every dollar in earnings.
For American Express, the trailing (historical) PE is 17.8x. Considering that earnings are relatively stable, we can use estimates and compute a forward PE of 18.27x. This implies that the stock may get more expensive as investors are not projecting to see enough earnings growth.
One can always value a stock on an intrinsic basis as well, and our general DCF valuation model can give investors a great baseline when thinking about the future of American Express.
A shortcut to this, which only applies if a company has stable future earnings, is to take the future earnings estimate (US$7.351b), and divide it by the current enterprise risk premium for the market (5%), giving us a stable growth intrinsic value of:
US$7.351b / 0.05 = US$147.2b
The stock has a market cap of US$134.5b, implying that it is slightly undervalued by 9%. You can compare this with our more detailed DCF.