The Dow Jones Industrials Average ($DOWI) is skyrocketing, surging past the 40,000 mark, driven by robust corporate returns and renewed speculation surrounding potential interest rate cuts. American Express Company (AXP), a key performer driving the Dow to unprecedented heights, is leading this charge.
In today’s digital era, almost every penny moves through cyberspace, and integrated payment systems, like those of American Express (AmEx), play a crucial role in ensuring smooth financial operations, come rain or shine. AmEx has proven its ability to offer seamless payment systems, adapting proficiently to ever-changing market trends.
Further bolstering its reputation, Warren Buffett's long-standing investment in dividend-paying American Express underscores its enduring value. Regulatory filings show Berkshire Hathaway (BRK.B) holds about $34.5 billion in AmEx, which makes up about 10% of Berkshire's stock portfolio.
Given that shares of AmEx have seen an outstanding rise of 29.6% on a YTD basis, dwarfing the Dow’s 6.1% gain, is it too late to jump on the express train? Let's have a closer look.
About American Express Stock
Founded in 1850, New York-based American Express Company (AXP) is a financial sector powerhouse renowned for its premium card offerings catering to an affluent clientele. AmEx markets its products and services to consumers, small businesses, and large corporations through various channels, including digital applications, affiliate marketing, and direct-response advertising. The company is actively expanding its digital payment solutions, targeting millennials and Gen Z.
With a market cap of $174.6 billion, AmEx provides stability through economic cycles. The enduring appeal of credit and debit card convenience and rewards sustains its widespread usage despite evolving preferences.
Shares of American Express have gained 58.6% over the past 52 weeks, outperforming the broader S&P 500 Index's ($SPX) 26.8% returns and the Dow’s 19.7% gains over the same time frame. Moreover, AXP stock currently trades marginally below the 52-week high of $244.41.
AmEx's dividend enhances the stock's appeal. Earlier this year, management raised the quarterly dividend by 17% to $0.70 per share. The company’s annualized dividend of $2.80 translates to a 1.15% dividend yield.
Despite pausing increases during the COVID-19 pandemic, the company maintained its dividend payments, boasting a consistent record since 1985. Looking forward, further dividend growth is likely, supported by the company's low payout ratio of just 19.4%.
In terms of valuation, American Express stock trades at 18.58 times forward earnings and 2.87 times sales - much lower than its peers Visa (V) and Mastercard (MA).
AXP's Q1 Earnings Beats Wall Street Projections
Shares of the credit card giant rose 6.2% on April 19 after it reported Q1 earnings results, buoyed by increased spending on its cards and higher customer balances. While revenue of $15.8 billion, up 11% annually, came in line with estimates, its EPS of $3.33, which increased 39% year over year, beat analysts' projections by 12.1%.
In Q1, AmEx customers spent $419.2 billion on their cards, a 5% annual increase. Along with merchant fees, AmEx now rakes in significant interest income from cardholders carrying balances. The company earned $5.06 billion in interest, up 28% year-over-year, to account for about a third of its revenue. In Q1, the company added 3.4 million new card members, with 70% choosing cards with annual fees. Millennials and Gen Z drove demand, making up over 60% of new consumer accounts worldwide.
American Express expects fiscal 2024 revenue growth of 9% to 11% and EPS between $12.65 and $13.15. Analysts tracking American Express predict its EPS to grow to $12.99 in fiscal 2024, up 15.9% annually, and then another 14.1% to $14.82 in fiscal 2025.
What Do Analysts Expect for American Express Stock?
On May 1, RBC Capital Markets boosted AXP’s price target to $263 from $253, while keeping an “Outperform” rating. This note follows an investor day during which AmEx reaffirmed its long-term growth goals and positive outlook despite moderating near-term billings growth. Management remains confident in strong revenue and EPS growth ahead.
American Express has a consensus “Moderate Buy” rating overall. Of the 21 analysts covering the stock, nine advise a “Strong Buy,” two give a “Moderate Buy,” eight suggest a “Hold,” and two recommend a “Strong Sell.”
Despite trading at a premium to the mean price target of $226.58, the Street-high target price of $265 for American Express, assigned by Wells Fargo (WFC) in April, suggests an upside potential of 9.3%.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
