American Express (AXP) stock has seen strong gains this year, outperforming the S&P 500 by 8%. Despite the impressive performance, the stock is currently trading slightly above its fair value estimate of $228. AXP has consistently outperformed the broader market in each of the last three years, with returns of 35% in 2021, -10% in 2022, and 27% in 2023. This is in contrast to other heavyweights in the Financials sector, as well as popular megacap stocks like Google, Tesla, and Microsoft.
In the first quarter of FY 2024, American Express reported total revenues of $15.8 billion, up 11% year-over-year. This growth was driven by a 6% increase in noninterest revenues and a 26% jump in net interest income. The company’s noninterest revenues benefited from growth in the billed business and premium card portfolios, while the NII was up due to higher net interest margin and outstanding card loans. Despite a 20% increase in provisions for credit losses, AXP saw a 34% year-over-year increase in net income to $2.4 billion.
Looking back at FY 2023, AXP’s top line grew 14% year-over-year to $60.5 billion, with noninterest income up 10% and net interest income up 33%. Provisions for credit losses more than doubled to $4.9 billion, but were partially offset by lower noninterest expenses as a percentage of revenues. The adjusted net income for the year improved by 12% year-over-year to $8.25 billion. Analysts expect the strong performance to continue in the second quarter, with consensus estimates for revenues of $16.59 billion and earnings of $3.22.
For FY 2024, American Express’ revenues are estimated to reach $66.36 billion, with an adjusted net income of $9.2 billion. This, coupled with an annual GAAP EPS of $12.94 and a P/E multiple just under 18x, will lead to a valuation of $228 per share. The current macroeconomic environment, characterized by high oil prices and elevated interest rates, has generated uncertainty in the market. However, given AXP’s strong performance and ability to navigate through challenging times, the company could see a further jump in its stock price.
In conclusion, American Express has been a standout performer in the financial sector, consistently beating the S&P 500 in recent years. The company’s strong performance in the first quarter of FY 2024, coupled with expectations for continued growth in the second quarter, bodes well for its future outlook. Investors looking for a market-beating portfolio may want to consider AXP, as it has shown resilience and strong earnings growth potential. With a focus on innovation and customer experience, American Express is well-positioned to capitalize on opportunities in an evolving financial landscape.
