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American Express’ stock (NYSE: AXP) has gained 23% YTD, compared to the 15% rise in the S&P500 over the same period. In sharp contrast, American Express’ peer Capital One (NYSE: COF) was up just 5% YTD. Overall, AXP is currently trading at $231 per share, just above its fair value of $228 – Trefis’ estimate for American Express’ valuation.

Amid the current financial backdrop, AXP stock has seen extremely strong gains of 90% from levels of $120 in early January 2021 to around $230 now, vs. an increase of about 45% 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 27% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023. 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 JPM, V, 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 outperformed the street consensus in the first quarter of FY 2024. It reported total revenues of $15.8 billion – up 11% y-o-y, driven by a 6% gain in the noninterest revenues and a 26% jump in the net interest income (NII). The noninterest revenues mainly benefited from a 6% increase in the billed business, coupled with growth in premium card portfolios. Similarly, the NII was up due to higher net interest margin and outstanding card loans. On the cost front, provisions for credit losses rose by 20% y-o-y in the quarter. However, the negative impact was more than offset by lower noninterest expenses as a % of revenues. Altogether, it resulted in a net income of $2.4 billion – up 34% y-o-y.

The company’s top line grew 14% y-o-y to $60.5 billion in FY 2023, driven by a 10% increase in the noninterest income and a 33% rise in the net interest income. On the expense front, the provisions figure witnessed an unfavorable build-up in the year – more than doubling to $4.9 billion. However, the impact was partially offset by lower noninterest expenses as a % of revenues All in all, the adjusted net income improved by 12% y-o-y to $8.25 billion.

Moving forward, we expect the second quarter results to follow the same trend. The consensus estimates for Q2 revenues and earnings are $16.59 billion and $3.22 respectively. Overall, American Express’ revenues are estimated to touch $66.36 billion in FY2024. Additionally, AXP’s adjusted net income margin is likely to remain around the same level as the previous year, leading to an adjusted net income of $9.2 billion. This coupled with an annual GAAP EPS of $12.94 and a P/E multiple of just below 18x will lead to a valuation of $228.

[1] Returns as of 6/27/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.