Is American Express Stock a Buy Now!? | American Express (AXP) Stock Analysis! |

Summary

This video script discusses American Express (ticker: AXP) as an underappreciated investment compared to Visa and MasterCard. It highlights AXP's strong performance, with a 56% rise in the past year and a 177% increase over a decade. The script emphasizes AXP's unique membership model, high customer spending power, and subscription-like revenue, which includes significant annual card fees and merchant discount fees. It also notes AXP's aggressive share buyback strategy, reducing outstanding shares by over 25% in the past decade. The video concludes with a stock valuation, suggesting an intrinsic value of around $268 per share, making it an attractive investment for those interested in both growth and dividends.

Takeaways

• 📈 American Express (ticker: AXP) has seen significant growth, with its stock price up over 56% in the past year.
• 🏦 By purchase volume, American Express ranks as the third-largest credit card network in the US, following Visa and MasterCard.
• 📊 Historical performance shows impressive gains, with approximately 100% growth over the past 5 years and 177% over the past decade.
• 💰 American Express offers a higher dividend yield compared to Visa, with a 10.5% free cash flow payout ratio, indicating strong cash flow management.
• 🔄 The company has been aggressive in share buybacks, reducing outstanding shares by over 25% in the past decade, enhancing shareholder value.
• 🔑 A key differentiator for American Express is its membership model, which includes a premium customer base and subscription-like revenue streams.
• 💳 The company's cards, like the Platinum card, come with high annual fees, attracting a high-income customer segment and resulting in higher spending per card.
• 📉 American Express has a unique business model with a significant portion of its revenue coming from spend and fee revenues, unlike its peers.
• 💼 The company has shown strong brand loyalty, with a 98% business retention rate, and the industry is projected to grow at an annual rate of 8%.
• 📊 Valuation analysis suggests an intrinsic value of around $268 per share, with American Express trading above its intrinsic value, indicating a potential overvaluation.

Q & A

What is the current stock price of American Express?

The current stock price of American Express is $248 per share.

How has American Express' stock performed over the past year?

Over the past year, American Express' stock has increased by over 56%.

What is American Express' position among top credit card networks in the US by purchase volume?

American Express is the third largest credit card network in the US by purchase volume, following Visa and MasterCard.

What are the key differences between American Express and its peers Visa and MasterCard?

American Express has a membership model, higher spending power per card, subscription-like membership fees, and a unique way of pocketing the difference in full for merchant discount fees, which sets it apart from Visa and MasterCard.

What is American Express' dividend yield and how does it compare to Visa's?

American Express' dividend yield is 1.13%, which is a bit higher than that of Visa.

How has American Express' dividend growth performed over the past 5 and 10 years?

American Express has seen double-digit dividend growth over both the past 5 and 10 years.

What is American Express' free cash flow payout ratio and what does it indicate?

American Express' free cash flow payout ratio is about 10.5%, indicating that the company uses a small portion of its free cash flow for dividends, leaving a significant amount for reinvestment and share buybacks.

How has American Express reduced its outstanding shares over the past decade?

American Express has aggressively bought back shares, reducing its outstanding shares by over 25% from about 1.08 billion to around 735 million by the end of 2023.

What is the projected growth rate for US consumer credit card billings?

US consumer credit card billings are projected to grow at an annual rate of 8%.

What is American Express' return on equity and how does it reflect the company's financial health?

American Express has a very high return on equity, indicating strong financial performance and efficient use of shareholders' equity.

Based on the script, what is the estimated intrinsic value of American Express stock?

The estimated intrinsic value of American Express stock, based on the script, is about $268 per share when averaging different valuation methods.

Outlines

00:00

📈 American Express: A Hidden Gem in the Credit Card Industry

The paragraph discusses the often overlooked American Express (ticker: AXP), which has shown significant growth over the past year, increasing over 56%. Despite being the third-largest credit card network in the US by purchase volume, it is overshadowed by Visa and MasterCard. The speaker, who owns Visa stock, argues that American Express deserves more attention, highlighting its historical performance with a 100% increase over five years and 177% over a decade. The company's competitive advantages include a unique membership model, a high dividend yield of 1.13%, and a low free cash flow payout ratio of 10.5%, indicating strong reinvestment back into the business and share buybacks. The paragraph also touches on the company's aggressive share repurchase strategy, reducing outstanding shares by over 25% in the past decade.

05:02

💼 American Express's Distinctive Business Model and Financial Performance

This paragraph delves into the distinctive aspects of American Express's business model, emphasizing its premium customer base and subscription-like membership fees. It contrasts the company's revenue model with that of its peers, highlighting how American Express captures the full merchant discount fees, unlike Visa or MasterCard, which split the fees. The paragraph also discusses the company's strong brand loyalty, as evidenced by a 98% business retention rate, and the industry's projected growth rate of 8% annually. Financially, American Express shows a high return on equity and a reduced net debt to EBITDA ratio, indicating a healthy financial position. However, the return on invested capital is noted to be lower than that of its competitors, with recent years showing a slight improvement.

10:04

💹 Valuation and Future Prospects of American Express

The final paragraph focuses on the valuation of American Express, using various methods including Graham's valuation, discounted cash flow (DCF) analysis, and the dividend discount model. The company's beta of 1.21 indicates higher volatility than the market. The intrinsic value calculated through these methods ranges from $234 to $368, with an average intrinsic value of about $268 per share. The speaker suggests a buy price of around $241 after applying a 10% margin of safety. The paragraph concludes by reiterating the company's unique business model, growth potential, and the expectation of solid dividend growth for investors, inviting viewers to share their thoughts and consider American Express for their portfolios.

Keywords

💡American Express

American Express is a multinational financial services corporation best known for its credit card, charge card, and traveler's cheque businesses. In the video, it is highlighted as a stock investment option, with a focus on its unique business model and financial performance. The script discusses its stock performance, dividend yield, and competitive advantages over other credit card networks like Visa and MasterCard.

💡Stock Ticker

A stock ticker is a unique series of letters assigned to a security for trading purposes. For American Express, the stock ticker symbol mentioned is 'AXP'. The script uses this ticker to discuss the company's stock price and performance, currently trading at $248 per share.

💡Dividend Yield

Dividend yield refers to the annual dividend payment divided by the market value of the security. The script mentions that American Express has a starting dividend yield of 1.13%, which is higher than Visa's. This metric is important for investors looking for income from their investments.

💡Free Cash Flow Payout Ratio

This ratio measures the percentage of a company's free cash flow paid out as dividends. The script points out that American Express has a very low free cash flow payout ratio of 10.5%, indicating that the company is retaining a significant portion of its cash flow for reinvestment and share buybacks.

💡Share Buybacks

Share buybacks refer to a company repurchasing its own shares from the market, which can increase the value of remaining shares. The script notes that American Express has aggressively bought back shares, reducing the number of outstanding shares by over 25% in the past decade.

💡Membership Model

American Express operates on a membership model, which is a key differentiator from its peers. The script explains that this model includes a premium customer base, diversified revenue streams, superior credit quality, and strong brand loyalty. This model allows American Express to charge annual fees for its cards, contributing to its subscription-like revenue.

💡Merchant Discount Fees

Merchant discount fees are the fees that merchants pay to accept card payments. The script explains that American Express retains the full difference between the transaction amount and the amount received by the merchant, unlike other networks like Visa or MasterCard, which split this difference.

💡Return on Equity (ROE)

ROE is a measure of a company's profitability in relation to its shareholders' equity. The script highlights that American Express has a high ROE, indicating efficient use of equity to generate net income.

💡Debt to Assets Ratio

This ratio indicates the proportion of a company's assets that are financed through debt. The script notes that American Express has a healthy debt to assets ratio, suggesting that the company is not overly leveraged and has a strong financial position.

💡Earnings per Share (EPS)

EPS is the portion of a company's profit allocated to each outstanding share of common stock. The script discusses the fluctuation in American Express's EPS over the years, with a general upward trend, indicating the company's growth in profitability.

💡Investor Presentation

An investor presentation is a document or event where a company shares its financial performance, strategy, and future outlook with investors. The script references an investor presentation to discuss American Express's strong brand loyalty, industry growth projections, and other key financial metrics.

Highlights

American Express (AXP) is often overlooked in the investment community despite its strong performance.

AXP stock has seen significant growth, up over 56% in the past year.

AXP ranks third in the US by purchase volume among top credit card networks.

Over the past 5 years, AXP's value has increased by around 100%, and 177% over the past decade.

AXP has a higher starting dividend yield than Visa at 1.13%.

AXP has experienced double-digit dividend growth over the past 5 and 10 years.

AXP has a very low free cash flow payout ratio of 10.5%, indicating strong financial health.

AXP has aggressively bought back shares, reducing outstanding shares by over 25% in the past decade.

AXP's membership model includes a premium customer base and subscription-like revenue.

AXP's users have high spending power, with three times the US spend per card versus other networks.

AXP's subscription-like revenue model provides pricing power and has shown significant fee increases.

AXP's revenue model is unique, with 78% coming from spend and fee revenues, compared to peers' 15%.

AXP retains the full merchant discount fee, unlike other networks that split it with banks.

AXP has a strong brand loyalty, with a 98% business retention rate.

The US consumer credit card industry is projected to grow at 8% annually, indicating potential for AXP's growth.

AXP has a high return on equity and has reduced net debt to EBITDA over the past decade.

AXP's earnings per share have grown significantly over the past decade, despite some fluctuations.

AXP's return on invested capital is lower than Visa and MasterCard, but has been above 10% in recent years.

Valuation analysis suggests AXP's intrinsic value is around $268 per share, with a suggested buy price of $241.

AXP offers a unique business model with a growth runway and potential for solid dividend growth for investors.

Transcripts

often times in the investing Community

we hear about how great stocks like visa

and MasterCard are and to be fair I

actually own a lot of Visa stock I

absolutely love the company but we don't

hear about American Express nearly

enough this is stock ticker ax currently

trading at $248 per share and look at

this over the past year now up over

56% now let's put all this into a little

bit of perspective when it comes to top

credit card networks in the US by

purchase volume we can see Visa is by

far the largest player and MasterCard is

the second largest then we have American

Express at the third largest so this

kind of puts this into perspective now

if we look at some more historical data

over the past 5 years the company's up

around 100% and over the past decade up

around

177% now when we talk about American

Express there's a few key differences

you have to understand that makes it

very different from visa and MasterCard

and in fact I think some would argue

that it gives them a competitive

Advantage now to start off let's go

ahead and look at the dividend metrics

because they're actually a little bit

different from visa and MasterCard when

I plug in the stock ticker you can see

all this data will automatically load in

thanks to the help of the ticker data

add-on and like always if you'd like to

be able to download any of my

spreadsheets and also get access to the

ticker dat add-on then you can head over

to Ticker dat.com at the link in the

description and get a 7-Day free trial

now we can see the starting dividend

yield for a is a little bit higher than

that of Visa it's sitting at

1.13% and they've also seen double

digigit dividend growth over the past 5

and 10 years so yes they are increasing

those dividend payouts but what I really

like also is a very very low free cash

flow payout ratio even lower than Visa

it's sitting at just about 10.5% so keep

in mind remember a company can do five

different things with free cash flow

they can reinvest back into the business

which all companies should be doing they

can pay down debt they can pay out

dividends they can buy back shares and

then of course attempt mergers and

Acquisitions so with American Express

only using 10.5% of their free cash flow

to pay out dividends they have about 90%

of their free cash flow left over to

reinvest back into the business and also

buy back shares which actually if we

jump over to my stock screener and come

up here and PL a we can see this is

actually something the company has been

doing pretty aggressively they have

bought back a lot of shares over the

past decade going from about 1.08

billion to the end of 2023 all the way

down to around 735 million so they

bought back over 25% of their

outstanding shares in the past decade

that's going to provide a huge boost to

shareholder returns jumping back over to

our dividend breakdown sheet we can see

a nice long history of increasing those

dividend payouts again we already

touched on the double- digigit dividend

growth so from a dividend perspective

things look pretty good yes lower

dividend yield like we would expect but

this company is reinvesting heavily back

into the business and buying back shares

and we're still seeing double digigit

dividend growth so overall I really like

what I see here but one of the key

points that really differentiates

American Express from their peers is

their membership model and I think

there's a lot to like here if we scroll

down we can see they have four outcomes

to their membership model now the first

is attractive and Global premium

customer base Diversified and

subscription like revenue and we're

going to talk about that because that's

a huge one Superior Credit quality and

and performance and Superior loyalty and

engagement with their Global brand now

you may be wondering why do we think

these are the outcomes well we have to

understand what American Express does if

we go over to their website we can see

the first thing they provide premium

credit cards for example look at the

platinum card there's an annual fee of

$700 just to use this card so typically

we're going to see people with much

higher incomes than that of the average

start using these cards and that's what

leads to the global premium customer

base now there is more advantages like

we'll see here in just a moment if we

keep scrolling down we can see that

their users have very high spending

Power American Express has three times

the US spin per card versus other

networks so people using American

Express are spending quite a bit more

than users using Visa or Mastercard then

if we scroll down to our next slide on

this Investor's presentation we're going

to get to one of my favorite things

about American Express and that's their

subscription like membership fees now I

typically love companies that have

subscription Revenue think of great

companies like Netflix and Costco

they've performed really well over the

past decade an American Express

subscription like revenue is a huge

Advantage for the company and it also

gives him a lot of pricing power so for

example we can see us consumer Platinum

Card 2023 versus 2021 they've increased

the fee to use this card by 26% during

this short time period so this is the

card we just looked at on their website

$695 annual fee look at us consumer gold

from 2023 versus 2018 they've increased

the fee to use this card by 28% it's now

$250 a year so if we look at this next

slide we can see yes it does deliver a

diversified Revenue model but here's

what's really unique about American

Express typically when we look at the

peers of American Express most of their

income is going to come from net

interest income this is typically around

85% for the peers while 15% is spend and

fee revenues but look at this for

American Express it's vastly different

from their peers we can see spend and

fee revenues coming at about 78% so this

includes Merchant discount fees and

annual card fees so overall American

Express is five times higher average

annual subscription like card fees

versus their peers and they're able to

do this because they have such a premium

user base their users are typically

spinning three times more than users of

like discover Visa or Mastercard so

their subscription Revenue yes it's very

predictable and it's easy to increase

the price in order to increase their

income over the years but like I

mentioned a moment ago we also have to

remember that this 78% also includes

Merchant discount fees now what is a

merchant discount fee and it summarized

pretty well in this article we can see

when a merchant accepts an MX card for

pay say around $100 it receives on

average around

[Music]

$97.74 the full $100 and the difference

represents discount revenues that's

Revenue going directly to MX but one of

the key points that also differentiates

them is American Express uniquely

Pockets the difference in full when a

similar transaction happens with other

cards the same difference is split

between the network Visa or Mastercard

and two Banks the merchants and the

customers so again American Express is

pocketing this difference in full

another huge Advantage for the company

so we're already beginning to see that

there are some key differences when it

comes to American Express versus their

peers so now I want to quickly jump back

into the investor presentation but first

I want to take 30 seconds to say thank

you to our sponsor today's sponsor is

Fint talk F talk allows you to get way

more insights into dividend stocks just

like American Express if we scroll down

here we can see the company's dividend

score and they're completely transparent

with how they came to the score they're

looking at things like payout ratio

interest rate cover and the dividend

stability if we scroll down we can also

see things like dividend growth over

time and the dividend safety if we

scroll down a bit further we can see

even more key insights from analysts but

then perhaps my favorite feature is

being able to generate a summary of a

company's earnings call using AI the

first 20 people to click on the fin talk

Link in the description will get a 20%

off discount using Code

D20 okay so if we jump back into the

Investor's presentation one of the

things we have to point out is how

strong the brand loyalty is for this

company we can see 2023 exp build

business business retention rate is 98%

that's really high and then if we look

at the 39th slide we see what we should

already know and it's very easy to

understand this their industry is still

projected to grow at a very high rate

moving forward us consumer credit card

Billings are projected to grow at 8%

annually now if we look at American

Express from a balance sheet perspective

a couple of key things we need to point

about this company is first off very

high return on Equity that's a good sign

but look at the net debt to evit do over

the past decade it has drastically been

reduced so earnings before interest

taxes depreciation and amortization has

gone up while the net debt for the

company has been going down and we can

see this reflected in the debt to assets

ratio over time it's sitting at a very

healthy range as of the end of 2023 at

just 9 so we can see total assets is way

higher than the company's total debt if

we look back at the stock screener we

can see earnings per share has

fluctuated a little bit for the company

they had down years in 2017 and in 2020

but overall it's grown at a pretty high

rate over the past decade going from

$44.91 all the way up to around

$11.23 now one area where the company

doesn't look quite as strong as visa and

MasterCard is when it comes to return on

invested Capital we can see this is

quite a bit lower than their peers now

over the past 3 years it's been above

10% which typically when I buy a stock

in my portfolio I want to see roic of at

least 10% and it looks like they're

sitting at about 12.8 in 2021 14% in

2022 and 2023 around 11% so with all

this being said is American Express a

good stock to consider adding your

portfolio at around

$248 and to answer that let's go ahead

and jump into my stock valuation

spreadsheet we'll come up here and plug

in

a and one of the things we can notice

about the company is come down here look

at the beta sitting at 1.21 so you will

see a little more volatility than that

of the market so you have to ask

yourself are you okay with that if

you're longterm shouldn't bother you too

much now the first valuation we'll look

at is going to be Grahams valuation in

this Vala company based on this formula

here and basically what it does is it

looks at how much the earnings per share

is projected to growth while also taking

into account current market condition so

we have our estimated earnings per share

average here at

13.57% to 11% which is in line with what

it used to be but they increased their

earnings per share projected growth so

that's a good sign for the company and

probably a big reason why it's up around

55% year to date so far we can see

they're projecting earnings per share

growth to be 19% to 23% so that's pretty

high now we have to understand long term

it likely won't be that high but moving

forward I'm going with around 12 for the

growth rate projection so then we divide

by y as we can see right here which is

the current y on AAA corporate bonds and

we come to an intrinsic value of

$234 188 per share pretty close to the

current trading price now the next

valuation we're going to look at is

going to be our discounted cash flow

analysis and we have to keep in mind

exp's free cash flow has kind of been

all over the place so it does make get a

little bit more difficult to perform a

discounted cash flow analysis but after

applying all our projections we actually

come to a DCF price per share of about $

36836 now we're not going to use the

multiple valuation in this scenario

because this business model is just a

little too different from visa and

MasterCard for my liking so that means

the last valuation we will look at is

going to be our dividend discount model

and this Val is a company based on how

much they pay out in dividends and how

much the dividend is increasing over

time so in this scenario we're going

with a dividend growth rate projection

of about 7.5% so with that discount rate

of 9% % we come to a dividend discount

model price per share of about $21 so

when we jump over to the output tab we

can see the three valuations that we

used and when we average them together

we come to an intrinsic value of about

$268 per share so with a 10% margin of

safety looks like our acceptable Buy

price is Sting at about

$241 but the intrinsic value is still

around 7.5% higher than the current

trading price of the company so American

Express definitely provides a unique

business model to its investors and to

its users the has a nice growth Runway

set out for it and if you're a dividend

investor like myself then I think you

can continue to expect pretty solid

dividend growth moving forward for the

next decade so go ahead let me know what

you think of this company in the

comments down below if you plan on

buying or selling and like always if

you'd like to able to download any of my

spreadsheets then you can head over to

Ticker dat.com at the link in the

description so with all that being said

thank you guys so much for watching and

please don't forget to like And

subscribe to the channel