We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
AmEx Stock Rallies 37.2% YTD: Time to Buy, Sell or Hold?
Read MoreHide Full Article
American Express Company’s (AXP - Free Report) shares have risen 37.2% in the year-to-date period, outperforming the industry’s growth of 6.5%. It also outperformed its peers like Mastercard Incorporated (MA - Free Report) , Visa Inc. (V - Free Report) , and Euronet Worldwide, Inc. (EEFT - Free Report) , which have gained 3.9%, 10.6% and 3.5%, respectively, in the same time frame.
A strong revenue growth outlook, continued growth in card fees, and discount revenues are buoying the company’s price performance. AXP expects its long-term revenue and EPS growth to be 10% and mid-teens, respectively. Now, let's review what factors that are favoring AXP’s results.
YTD Price Performance
Image Source: Zacks Investment Research
AXP Stock’s Bright Prospects
AXP’s results continue to be driven by increased card member spending, fee growth, rising interest income, and a growing Gen-Z and Millennial customer base.
American Express's moat of marketing its credit cards as status symbols, with perks matching the needs of a high-travel and high-spending lifestyle, helps it retain a loyal customer base. Despite the current soft-spending growth concerns, the company expects its premium customer base to continue driving its card fee revenue growth, which came in at 15% in the second quarter of 2024. The company’s premium services bode well as it continues to attract new customers. Another source of steady income growth is AXP’s loans and card member receivables. This metric rose 11% in the second quarter of 2024 and is expected to moderate but continue growing in double-digits.
AmEx's strategic focus on enhancing value propositions and expanding product offerings further solidifies its position as a preferred choice among consumers. Its U.S. Consumer Services billed business growth in large part comes from Millennials and Gen-Z customers, rising 13% year over year in the second quarter. It seems like the company will focus on this category to maintain steady billed business growth in a soft-spend environment by offering lucrative rewards and improving engagement. However, the credit quality associated with younger-generation card loans needs to be kept in check.
The company continues to focus on product innovation, marketing, and technology, among other areas, to maintain its relevance and enhance its offerings. By the end of 2024, it plans to refresh 40 products worldwide. The company intends to increase its marketing budget by 15% compared to last year to capitalize on the rising demand for its products. This initiative aims to add value to its premium card offerings. Strategic partnerships are also helping AXP broaden its reach and boost customer engagement, which will support the acquisition of more cardholders and improve spending prospects over the medium to long term.
AXP’s Capital Deployment Update
AXP continues to return value to its shareholders through dividend payments.
American Express bought back 7 million common shares in the second quarter of 2024. The company paid a per-share dividend worth 70 cents in the second quarter of 2024. With continued strength in its earnings and cash flow growth, AXP is expected to continue boosting its dividend going forward.
Estimate Revision Favoring AXP Stock
AXP’s 2024 earnings have witnessed two upward estimate revisions against none in the opposite direction during the past 30 days. The Zacks Consensus Estimate for 2024 earnings has improved 6 cents at the same time. The consensus mark for 2025 witnessed two upward revisions against none in the opposite direction during the same period. AXP beat earnings estimates in three of the past four quarters, average surprise being 7.7%.
Image Source: Zacks Investment Research
AXP Stock Returns Higher Than the Industry
AXP’s trailing 12-month return on assets (ROA) is 3.56%, ahead of the industry average of 2.94%. ROA is a financial ratio that measures how well a company uses its assets to generate profit. The current ROA of the company indicates that it is using its assets more efficiently than its peers.
Image Source: Zacks Investment Research
AXP’s Risks
However, there are a few risks investors should keep an eye on. AXP’s card member rewards have been on the rise, which increased 6.9% in the second quarter of 2024. It rewards cardholders with lucrative offers in a bid to lure them to spend more. The metric rose 6.9% in the second quarter of 2024. Continuous rise in card member rewards might hamper AXP’s bottom line in the future. Card Member services expenses increased 22% year over year in the second quarter of 2024. A higher usage of travel-related benefits might further increase this expense in the future. More competition would prove to be bad for American Express, as it would further cause its expenses to rise, affect pricing and harm its profit margins.
AXP Currently Trading at a Premium
From a valuation perspective, AXP is trading at a premium compared to the industry’s average. The company's shares are currently priced at a forward price/earnings ratio of 17.88X, which is higher than the median value of 16.27X and the industry’s average of 13.93X.
Image Source: Zacks Investment Research
Summing Up
Considering AXP’s initiatives to increase market share and boost top-line growth, like an increase in marketing expenses and enhancing offerings, we believe it may offer substantial upside potential from the current levels. Hence, it might not be opportune to consider profit-taking at this juncture. Furthermore, its premium valuation signals new investors to wait for a better entry point. Given the improvement in earnings estimates and return on assets, it will be wise to remain invested in this Zacks Rank #3 (Hold) company.
Image: Bigstock
AmEx Stock Rallies 37.2% YTD: Time to Buy, Sell or Hold?
American Express Company’s (AXP - Free Report) shares have risen 37.2% in the year-to-date period, outperforming the industry’s growth of 6.5%. It also outperformed its peers like Mastercard Incorporated (MA - Free Report) , Visa Inc. (V - Free Report) , and Euronet Worldwide, Inc. (EEFT - Free Report) , which have gained 3.9%, 10.6% and 3.5%, respectively, in the same time frame.
A strong revenue growth outlook, continued growth in card fees, and discount revenues are buoying the company’s price performance. AXP expects its long-term revenue and EPS growth to be 10% and mid-teens, respectively. Now, let's review what factors that are favoring AXP’s results.
YTD Price Performance
Image Source: Zacks Investment Research
AXP Stock’s Bright Prospects
AXP’s results continue to be driven by increased card member spending, fee growth, rising interest income, and a growing Gen-Z and Millennial customer base.
American Express's moat of marketing its credit cards as status symbols, with perks matching the needs of a high-travel and high-spending lifestyle, helps it retain a loyal customer base. Despite the current soft-spending growth concerns, the company expects its premium customer base to continue driving its card fee revenue growth, which came in at 15% in the second quarter of 2024. The company’s premium services bode well as it continues to attract new customers. Another source of steady income growth is AXP’s loans and card member receivables. This metric rose 11% in the second quarter of 2024 and is expected to moderate but continue growing in double-digits.
AmEx's strategic focus on enhancing value propositions and expanding product offerings further solidifies its position as a preferred choice among consumers. Its U.S. Consumer Services billed business growth in large part comes from Millennials and Gen-Z customers, rising 13% year over year in the second quarter. It seems like the company will focus on this category to maintain steady billed business growth in a soft-spend environment by offering lucrative rewards and improving engagement. However, the credit quality associated with younger-generation card loans needs to be kept in check.
The company continues to focus on product innovation, marketing, and technology, among other areas, to maintain its relevance and enhance its offerings. By the end of 2024, it plans to refresh 40 products worldwide. The company intends to increase its marketing budget by 15% compared to last year to capitalize on the rising demand for its products. This initiative aims to add value to its premium card offerings. Strategic partnerships are also helping AXP broaden its reach and boost customer engagement, which will support the acquisition of more cardholders and improve spending prospects over the medium to long term.
AXP’s Capital Deployment Update
AXP continues to return value to its shareholders through dividend payments.
American Express bought back 7 million common shares in the second quarter of 2024. The company paid a per-share dividend worth 70 cents in the second quarter of 2024. With continued strength in its earnings and cash flow growth, AXP is expected to continue boosting its dividend going forward.
Estimate Revision Favoring AXP Stock
AXP’s 2024 earnings have witnessed two upward estimate revisions against none in the opposite direction during the past 30 days. The Zacks Consensus Estimate for 2024 earnings has improved 6 cents at the same time. The consensus mark for 2025 witnessed two upward revisions against none in the opposite direction during the same period. AXP beat earnings estimates in three of the past four quarters, average surprise being 7.7%.
Image Source: Zacks Investment Research
AXP Stock Returns Higher Than the Industry
AXP’s trailing 12-month return on assets (ROA) is 3.56%, ahead of the industry average of 2.94%. ROA is a financial ratio that measures how well a company uses its assets to generate profit. The current ROA of the company indicates that it is using its assets more efficiently than its peers.
Image Source: Zacks Investment Research
AXP’s Risks
However, there are a few risks investors should keep an eye on. AXP’s card member rewards have been on the rise, which increased 6.9% in the second quarter of 2024. It rewards cardholders with lucrative offers in a bid to lure them to spend more. The metric rose 6.9% in the second quarter of 2024. Continuous rise in card member rewards might hamper AXP’s bottom line in the future. Card Member services expenses increased 22% year over year in the second quarter of 2024. A higher usage of travel-related benefits might further increase this expense in the future. More competition would prove to be bad for American Express, as it would further cause its expenses to rise, affect pricing and harm its profit margins.
AXP Currently Trading at a Premium
From a valuation perspective, AXP is trading at a premium compared to the industry’s average. The company's shares are currently priced at a forward price/earnings ratio of 17.88X, which is higher than the median value of 16.27X and the industry’s average of 13.93X.
Image Source: Zacks Investment Research
Summing Up
Considering AXP’s initiatives to increase market share and boost top-line growth, like an increase in marketing expenses and enhancing offerings, we believe it may offer substantial upside potential from the current levels. Hence, it might not be opportune to consider profit-taking at this juncture. Furthermore, its premium valuation signals new investors to wait for a better entry point. Given the improvement in earnings estimates and return on assets, it will be wise to remain invested in this Zacks Rank #3 (Hold) company.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.