American Express (NYSE: AXP) stock remains up by about 55% over the past year, considerably outperforming the S&P 500 which remains up by about 23% this year. In comparison, peer Capital One (NYSE: COF) is up 33% year-to-date, while Visa and Mastercard stocks are up by about 22% and 23% respectively. So what are some of the trends that have driven American Express stock higher of late?
American Express has posted strong financial results, beating earnings estimates over the first three quarters of this year. For Q3 2024, American Express’ revenue was up by about 8% year-over-year to $16.6 billion, while adjusted earnings came in at $3.49 per share, up about 6% compared to last year. American Express has a large base of affluent card members compared to its key rivals and these customers have continued to spend strongly, helping the company’s business. Billings, a metric representing cardholder spending, was up by about 6% from a year ago. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
The company’s fee revenue grew by a robust 18%. The average fees per card – which includes transaction fees, subscription fees, as well as commissions – increased 13% year over year in Q3. Amex’s customer cohort is attractive to merchants given their higher spending power. This means that Amex charges merchants higher discount rates than Visa and Mastercard (about 3%). The company also added about 3.3 million new card acquisitions and this is also helping to drive up subscription fee-related revenues. Amex also has multiple partnerships including Marriott International and Delta, enabling customers to earn attractive rewards and further incentivizing spending activity.
Admirably, AXP stock has generated better returns than the broader market in each of the last 4 years Returns for the stock were 37% in 2021, -9% in 2022, and 29% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk than the benchmark index, making the ride less of a roller-coaster, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and multiple wars, what lies ahead for Amex?
The company’s full-year revenue guidance was a bit softer than expected, projecting that revenue growth would come in at the low end of its previous guidance of 9% and 11% for the year. However, the company raised its EPS guidance for the fiscal year to $13.75 to $14.05 per share, up from $13.30 to $13.80 previously. There are a couple of trends that could drive AXP stock going forward. The Federal Reserve has cut interest rates three times since September, and lower rates could likely drive consumer spending to an extent benefiting AXP’s transaction volumes and fee revenues. The strong rebound in travel-related spending is also likely to help the company given that it specializes in premium travel credit cards.
The company has been expanding quickly among Gen Z and millennial customers, with its total rate of card additions coming in at about 3 million each quarter in recent quarters. Although this segment is unlikely to meaningfully drive card spending growth in the medium term, younger customers could emerge as high-value clients in the long run. The election of Donald Trump to the U.S. Presidency could signal an easier regulatory environment for financial players such as American Express and this could also help the company to an extent. We value AXP stock at about $255 per share, which is slightly below the current market price. See our American Express valuation for more details.
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