American Express Stock Up 21% YTD: What’s Next?

American Express’ (NYSE: AXP) stock has surged 21% year-to-date, outpacing the S&P500’s 10% increase over the same period. Currently trading at $228 per share, the stock sits 11% above its fair value of $205, according to Trefis’ estimate for American Express’ valuation.

In the past year, AXP stock has seen remarkable growth, rising 90% from $120 in early January 2021 to around $230 now. This performance surpasses the S&P 500’s 40% increase over the same period, marking three consecutive years of outperformance for AXP stock. Returns for AXP were 35% in 2021, -10% in 2022, and 27% in 2023, compared to the S&P 500’s 27% in 2021, -19% in 2022, and 24% in 2023.

Beating the S&P 500 consistently has been challenging for individual stocks in recent years, including heavyweights like JPM, V, MA, GOOG, TSLA, and MSFT. However, Trefis’ High-Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year, offering better returns with less risk.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, the question arises: could AXP see a strong jump?

In the fourth quarter of 2023, American Express underperformed street estimates, reporting total revenues of $15.8 billion, up 11% year-over-year (y-o-y). This growth was driven by a 7% increase in noninterest revenues and a 31% rise in net interest income (NII). Noninterest revenues benefited from higher card member spending, while the NII saw improvement in net interest yield and a 17% increase in card member loans. However, provisions for credit losses increased unfavorably from $1 billion to $1.4 billion, resulting in an adjusted net income of $1.9 billion, up 23% y-o-y.

For FY 2023, the company’s top line grew 14% y-o-y to $60.5 billion, driven by a 10% rise in noninterest revenues and a 33% jump in NII. Despite provisions more than doubling to $4.9 billion, a decrease in total expenses as a percentage of revenues from 77.8% to 74.5% helped the adjusted net income improve by 12% y-o-y to $8.25 billion.

Looking ahead, the trend is expected to continue in the first quarter, with revenues forecasted to reach $66.25 billion in FY 2024. The adjusted net income margin is likely to remain around the same level as last year, leading to an adjusted net income of $9.1 billion. With an annual GAAP EPS of $12.83 and a P/E multiple just below 16x, the valuation is estimated to reach $205.