American Express Stock is on the high side
[Updated 04/05/2021] American Express update
After a 105% rally from the lows of March 23 of last year, at the current price close to $ 141 per share, we believe American Express Stock (NYSE: AXP) is trading above its short-term potential. American Express, the credit card giant, saw its stock drop from $ 69 to $ 141 from a March 2020 low against the S&P 500 which gained nearly 80% – the stock leads more markets. wide and is trading 3% above its pre-Covid. -19 peak in February 2020. This growth could be attributed to the continued improvement in levels of consumer spending and the expected massive availability of the Covid-19 vaccine over the coming months, which has shaped investor sentiment in favor from AXP.
Although the company topped consensus estimates for revenue and earnings in its recently released fourth quarter results, revenue fell 18% year-on-year to $ 9.35 billion. It is mainly explained by an 18% year-on-year drop in non-interest income due to the drop in consumer spending and the drop in fees charged as a% of card transactions made with partner merchants (discount rate ). In addition, the company suffered a 17% drop in net interest income due to headwinds in interest rates. On a related note, American Express revenue for full year 2020 declined 17% year-on-year to $ 36.1 billion, mainly due to lower discount fees. and lower net interest income.
American Express is very sensitive to a change in consumer habits, which has a direct impact on the volumes of card transactions and the amount of credit on the card. In addition, AXP has signed co-branding card agreements with several hotel chains and airlines. With global travel and hotel occupancy rates at the end of the Covid-19 crisis due to travel bans and other restrictions, and a decrease in consumer spending due to the economic downturn, the figure of the company’s business suffered. However, levels of consumer spending have seen some recovery in recent quarters. Additionally, as more people receive the Covid-19 vaccine and economic conditions improve over the coming months, it will likely increase card transaction volumes. That said, the recovery is likely to be gradual and an immediate jump in trading volumes is unlikely. In addition, it will take some time for the global travel and hospitality industry to return to pre-Covid-19 levels. Overall, all of the above factors will limit American Express revenue to $ 40 billion in FY 2021. Additionally, AXP’s P / E multiple has fallen from around 12x in 2018 to nearly 32x in 2020. While the company’s P / E is just below from 38x now, there is a downside risk when the current P / E is compared to levels seen in recent years – a multiple of P / E of around 32x at the end of 2020. Our dashboard “What factors caused American Express stocks to move 48% between the end of 2018 and now?” provides the key figures of our thinking.
[Updated 05/08/2020] Does American Express cost $ 87?
American Express’ (NYSE: AXP) has gained more than 23% since its low of $ 69 on March 23. However, we believe American Express stock still has upside potential. Our belief comes from the fact that the company’s stock is still 30% lower than it was at the start of 2020 and just over 9% lower than it was at the end of 2017. Our chart of edge, ‘What factors caused American Express stocks to change 23.6% between 2016 and now?‘provides the key figures for our thinking, and we explain more below.
American Express revenue grew by around 23% from 2016 to 2019, which translated into a similar growth in net profit (profit margin fell in 2017 due to the enactment of US tax law, before normalizing the Next year). However, earnings growth, per share, was much higher at 42%, in part due to share buybacks. Specifically, the company has invested roughly $ 10.7 billion in buybacks over the past three years, resulting in an approximately 11% drop in outstanding shares. While American Express had around $ 36 billion in cash at the last report, we believe it will likely be difficult for the company to maintain that level of buyback.
Finally, American Express’s P / E ratio fell from around 12.5x at the end of 2016 to 15.4x at the end of 2019. While the P / E of American Express is down to around 10 , 8x now, which is the lowest level seen in recent years, there is upside potential for American Express’s multiple of levels seen in recent years – a P / E of 15.4 at the end of 2019 and 11.7 times more recent than at the end of 2018.
What is the impact of the coronavirus on the shares of American Express?
American Express shares have suffered as states and countries are stranded, which will hurt consumer spending and the global credit card industry. In addition, the company has co-branding card agreements with several hotel chains and airlines, for example Delta Air Lines.
However, if there are signs of the crisis easing when the Q2 results are announced, the company’s shares could see a rally. Although AXP’s 30% drop since early 2020 has surpassed that of Discover Financial
Our dashboard prediction of COVID-19 cases in the United States with international comparisons analyzes expected recovery times and possible virus spread. In addition, our dashboard -28% Coronavirus crash against 4 historical crashes creates a more complete macro image. It complements our analyzes of the impact of the coronavirus on a diverse set of American Express peers. The full set of coronavirus impact and timing analyzes is available here.
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