American Express Company (AXP Quick QuoteAXP - Free Report) is in a favorable position for growth, driven by an upswing in card member spending, increasing volumes and sustained business momentum. The resilience witnessed in consumer spending during recent times, despite macroeconomic uncertainties, inflation and a high interest rate environment, is expected to contribute positively to its performance.

American Express — with a market cap of $132.7 billion — is a diversified financial services company offering charge and credit payment card products and travel-related services worldwide. Courtesy of solid prospects, this Zacks Rank #2 (Buy) stock is an attractive investment opportunity now.

Let’s delve deeper.

The Zacks Consensus Estimate for AXP’s 2023 earnings is pegged at $11.23 per share, indicating 14% year-over-year growth. The estimate witnessed two upward revisions compared with one downward, over the past week. In the long term, the company foresees earnings growth in the mid-teens. American Express beat on earnings in two of the last four quarters and missed twice, with an average surprise of 0.1%. This is depicted in the graph below.

The consensus mark for current-year revenues stands at $60.7 billion, suggesting a 14.9% rise from the prior-year reported number. AXP expects total revenues to grow at around 15% year over year in 2023. Looking ahead, the company anticipates a continuous revenue growth trajectory, targeting more than 10% in the long run.

Both Billed Business and Processed Volumes are poised for sustained growth, contributing to the overall expansion of network volumes. This will play a major role in top-line growth. Growth in goods and services, travel and entertainment spending should fuel growth in the future. As consumer spending is proving to be resilient despite rising inflation, demand for travel and dining experiences is expected to be on the uprise, benefiting AXP’s top line. Growing U.S. consumer billings are expected to drive billing revenues for AXP.

The International Card Services segment, as well as the Global Merchant and Network Services unit, are expected to continue witnessing growth, driven by an increase in card member spending and growing network volumes, respectively. Card fees are expected to witness growth, supported by AXP’s new card acquisitions.

The emphasis on small and medium-sized enterprises positions AmEx for sustained long-term growth. The acquisition of Kabbage is anticipated to play a crucial role in this strategy. Additionally, AXP actively engages in partnerships and collaborations to strengthen its digital capabilities, aiming to deliver efficient billing, payment processes and other services for its clients.

American Express' robust return on equity of 30.6% (compared with the industry average of 19.8%) serves as a key indicator of its growth potential. It underscores the company's strategic prowess in effectively deploying shareholders' funds and highlights its financial strength.

Closing the third quarter, the company reported a robust financial position, with cash & cash equivalents standing at $44 billion, marking a significant increase from the $34 billion recorded at the end of 2022. Simultaneously, short-term borrowings remained manageable at $1.6 billion. The company demonstrated strong cash generation, producing free cash flow amounting to $18.6 billion in the trailing 12-month period.

In a commitment to shareholder value, AXP allocated $2.6 billion to share buybacks and distributed common stock dividends of $1.3 billion in the initial nine months of 2023. This underscores the company's dedication to enhancing shareholder returns.

Key Risks

However, there are a few factors that investors should keep an eye on.

Escalating expenses are exerting downward pressure on its margins. Last year, expenses jumped 24.1% year over year. The company expects variable customer engagement expenses at 42% of total revenues for 2023.

Also, American Express’ 12-month forward price-to-earnings multiple of 14.6X is higher than 12.4X of the industry. This valuation indicates a slightly higher expense relative to industry peers at the current level. Nevertheless, we believe that a systematic and strategic plan of action will drive AXP’s growth in the long term.

Other Stocks to Consider

Some other top-ranked stocks from the finance sector are Cboe Global Markets (CBOE Quick QuoteCBOE - Free Report) , Coinbase Global (COIN Quick QuoteCOIN - Free Report) and Assurant, Inc. (AIZ Quick QuoteAIZ - Free Report) .

Cboe Global delivered a trailing four-quarter average earnings surprise of 4.1%. The Zacks Consensus Estimate for CBOE’s 2024 earnings suggests a year-over-year rise of 6.4%. It presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Coinbase has a decent track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 63%. The Zacks Consensus Estimate for COIN’s 2024 earnings per share indicates a year-over-year increase of 34.7%. It currently carries a Zacks Rank #2.

Estimates for Assurant’s 2024 earnings per share indicate a year-over-year increase of 4.3%. The expected long-term earnings growth rate is 14.6%, better than the industry average of 11.8%. It presently sports a Zacks Rank #1.