Workflow
AmEx Stock Trails S&P 500, Declines 21% YTD: Time to Buy or Cash Out?
AXPAmerican Express(AXP) ZACKS·2025-04-07 16:55

Core Viewpoint - American Express Company (AXP) shares have declined 21.3% year to date, underperforming the S&P 500's 14.1% decline, amid broader industry struggles and concerns over economic factors [1][4] Company Performance - American Express is now 8.9% closer to its 52-week low of 214.51,whichmayattractinvestorslookingtobuythedip[4]−ThecompanyoperatesunderadifferentbusinessmodelcomparedtoVisaandMastercard,actingasbothacardissuerandpaymentprocessor,whichinvolvestakingonfullcreditrisk[5]−Despitetheperceivedrisk,AmericanExpressreliesonawealthy,low−riskcustomerbase,minimizingcreditrisk[6]MarketEnvironment−EconomistsandtradershaveraisedexpectationsforFederalReserveinterestratecuts,whichcouldimpactAmericanExpress′sbankingsegmentbyreducingnetinterestincome[7]−Lowerinterestratesmaystimulateconsumerspending,potentiallybenefitingAmericanExpress′scorecreditcardbusiness[7]Valuation−AmericanExpresstradesataforwardprice−to−earnings(P/E)ratioof14.70X,slightlyabovetheindustryaverageof13.18X,butbelowitsownfive−yearmedianP/Eof16.73X,indicatingpotentialforupside[9]−Incomparison,VisaandMastercardhavehighervaluations,tradingatforwardP/Eratiosof26Xand29.49X,respectively[10]FinancialHealth−Asofthefourthquarter,AmericanExpressheld214.51, which may attract investors looking to buy the dip [4] - The company operates under a different business model compared to Visa and Mastercard, acting as both a card issuer and payment processor, which involves taking on full credit risk [5] - Despite the perceived risk, American Express relies on a wealthy, low-risk customer base, minimizing credit risk [6] Market Environment - Economists and traders have raised expectations for Federal Reserve interest rate cuts, which could impact American Express's banking segment by reducing net interest income [7] - Lower interest rates may stimulate consumer spending, potentially benefiting American Express's core credit card business [7] Valuation - American Express trades at a forward price-to-earnings (P/E) ratio of 14.70X, slightly above the industry average of 13.18X, but below its own five-year median P/E of 16.73X, indicating potential for upside [9] - In comparison, Visa and Mastercard have higher valuations, trading at forward P/E ratios of 26X and 29.49X, respectively [10] Financial Health - As of the fourth quarter, American Express held 40.6 billion in cash and cash equivalents with only 1.4billioninshort−termdebt,indicatingastrongliquidityposition[12]−Thecompanygenerated1.4 billion in short-term debt, indicating a strong liquidity position [12] - The company generated 14 billion in net cash from operations in 2024, supporting growth investments and shareholder returns [12] - American Express returned $7.9 billion through dividends and share buybacks, with a recent 17% increase in its quarterly dividend [12] Customer Base and Strategy - American Express has a loyal customer base with high card acquisition and retention rates, driving steady card fee revenue [13] - The company is focusing on marketing to younger generations, viewing them as long-term growth opportunities [13] - With a diversified customer base and solid financials, American Express is positioned for continued earnings and revenue growth [14] Earnings Estimates - The Zacks Consensus Estimate for 2025 earnings indicates a 14.5% year-over-year increase, with revenue growth estimates of 8.6% for 2025 and 8.3% for 2026 [15] - American Express has surpassed earnings estimates in the past four quarters, delivering an average surprise of 6.9% [15] Challenges - The company's expenses have been rising, with total expenses increasing by 22% in 2021 and 24% in 2022, which may pressure profit growth [17] - American Express is more exposed to domestic economic fluctuations compared to Visa and Mastercard, making it less flexible in adapting to non-card payment trends [18]