American Express Stock Stuck at Current Valuation (NYSE:AXP)



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As a dividend growth investor, I am constantly on the lookout for additional opportunities to supplement my dividend income. In the financial sector, I own shares in banks, insurers, wealth managers and credit cards. I’ve owned shares of Visa (V) for nearly a decade, and the shares have appreciated significantly since I did.

In this article, I will dive deeper into another credit card company, American Express (NYSE: AXP). This credit card company is a historical investment of Berkshire Hathaway (BRK.A)(BRK.B). The company owns nearly 20% of this credit card issuer, and following the latest 20% dividend increase, I decided to take a closer look at the company.

I will analyze the company using my dividend growth stock analysis methodology. I use the same methodology to facilitate the comparison of the stocks analyzed. I will examine the fundamentals, valuation, growth opportunities and risks of the business. I will then try to determine if it is a good investment.

According to Seeking Alphas business overview, American Express Company provides payment and credit card products, as well as travel-related services worldwide. Its products and services include payment and financing products, network services, accounts payable expense management products and services, and travel and lifestyle services.

American Express logo (2018).svg



Over the past decade, American Express sales have grown 41%, translating to annual growth of less than 4%. This is not a very impressive number, as other credit card issuers such as Mastercard (MA) and Visa have seen much more impressive growth. American Express has higher revenues because it not only offers a network, but directly offers financial services, including loans. Going forward, analyst consensus, as seen on Seeking Alpha, expects American Express to continue to grow sales at an annual rate of around 15% over the medium term.

Data by YCharts

When it comes to EPS (earnings per share), the numbers are more impressive. The company has increased its EPS by about 10% per year over the past year. However, again, this is not a very impressive number compared to its competitors. Mastercard and Visa both focus on the network, which is a much more scalable business because more transactions have minimal marginal cost, while American Express offers services such as loans which require larger investments both in capital and employees. The company’s EPS growth was fueled by strong sales growth and buybacks. Going forward, analyst consensus, as seen on Seeking Alpha, expects American Express to continue to grow EPS at an annual rate of around 10% over the medium term.

Data by YCharts

The company’s dividend yield is in line with its peers. American Express pays less than 20% of its profits in dividends. This results in a dividend yield of less than 1%, which is of course extremely safe. The company has a long history of dividend increases which halted during the pandemic as the company froze payment. He increased it by 20% last month to make up for this lost year. Therefore, it may not be a dividend aristocrat, but it is clearly a dividend growth company.

Data by YCharts

The company also returns capital to shareholders in the form of redemptions, which are added to the dividends. Over the past decade, the company has repurchased more than a third of its shares. He contributed significantly to the company’s EPS. Buybacks benefited from the company’s lower valuation relative to its peers. A combination of a secure dividend with consistent redemptions is my forte as a dividend growth investor.

Data by YCharts


The company’s P/E ratio has improved over the past twelve years. While the company saw 160% EPS growth in 2021, the stock price has recovered at an even faster pace. The company’s multiples have increased and shares are now trading at 19.5 times estimated EPS for 2022 according to analyst estimates from Seeking Alpha.

Data by YCharts

The chart below from puts the current valuation into perspective. American Express’ average valuation over the past two years was lower than today’s valuation. The company’s average P/E was 17.5 versus 19.5 currently. Additionally, the company is also expected to grow at a slower rate compared to its historical rates. Therefore, at the current valuation, it is trading for a slight premium.

Quick graphics

Quick graphics

In conclusion, American Express has strong fundamentals for sales and EPS growth. It is not as impressive as its peers due to the different commercial offers. Yet American Express is growing and rewarding shareholders with growing dividends and redemptions. The company’s valuation is slightly higher than the average valuation, so the company will have to justify it with significant growth opportunities and limited risks.


Higher fares are the first growth opportunity for American Express. American Express may charge more interest when rates are higher. The Federal Reserve already raised the interest rate in March and is targeting further increases. The European Central Bank is more reluctant to follow due to the war in Europe and falling inflation, but it will eventually have to follow as inflation is already eroding savings across the continent.

American Express is experiencing loan growth due to the strong return of the pandemic recession. Consequently, the company showed significant growth in 2021. The company also expects 2022 and 2023 to be extremely strong due to the return of the pandemic. Not only does the company increase its loans, but it also benefits from a significant decrease in write-offs, which significantly improves the company’s bottom line.


Fourth quarter results

growth plan

Fourth quarter results

Customer satisfaction is another obvious growth opportunity. Credit card companies and financial services companies in general usually don’t get good publicity. The company enjoys high customer satisfaction, which leads to high retention in a business that is highly competitive in nature. Good customers who pay their bills on time and use the loans are willing to keep their American Express credit card.

Customer retention and satisfaction continue to be very strong and have remained above pre-pandemic levels. For example, global consumer retention rates are over 98%, and for the second consecutive year and 11th time in 15 years, we ranked first in JD Power’s annual US Consumer Satisfaction Survey for credit card.

(Stephen Squeri – Chairman and CEO, fourth quarter results)


Inflation is a significant risk for American Express. The company’s interest rates are affected by the rates set by central banks. Since inflation is much higher than the interest rate, the company may find it difficult to maintain its current profitability taking inflation into account. American Express will suffer from real income erosion as long as rates remain as low as they are.

The geopolitical situation is another challenge. First, it intensifies inflation. We are already seeing basic materials like oil and wheat becoming more expensive. Central banks around the world struggled to react to inflationary pressures as they had to support the economy during the war, especially in Europe. Moreover, war can lead to recession in addition to inflation.

A recession in Europe and later in the United States will affect the profitability of American Express. The recession will affect it in two ways. First, consumers will consume less, buy less and travel less. Second, if the recession is severe, we could see an increase in late payments and delinquent accounts, and this will have an effect on the company’s revenue and bottom line, as expenses will increase while customers will find it difficult to pay their debt.


American Express is a great company. It is no coincidence that 20% of the shares are held by Warren Buffett’s Berkshire. The company has grown steadily over the past decades, and it has several significant growth prospects that will fuel long-term growth through its extensive customer access and global network.

However, the company also faces short-term headwinds. Inflation, the risk of recession and tensions in Europe will complicate the execution of American Express over the next 1-2 years. The current valuation does not reflect this in my opinion, and therefore at the current price American Express is a hold. It would be attractive at a forward P/E of around 16, implying a stock price of around $160 based on current 2022 estimates, as it will provide some headroom for investors. .


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