Is American Express Stock a Buy Now!? | American Express (AXP) Stock Analysis! |
Summary
TLDRThis 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
📈 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.
💼 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.
💹 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.
Mindmap
Keywords
💡American Express
💡Stock Ticker
💡Dividend Yield
💡Free Cash Flow Payout Ratio
💡Share Buybacks
💡Membership Model
💡Merchant Discount Fees
💡Return on Equity (ROE)
💡Debt to Assets Ratio
💡Earnings per Share (EPS)
💡Investor Presentation
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
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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
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