American Express: Consumer Confidence Rebound Is Big

Investment Thesis - American Express shares have risen 7.72% since late May, outperforming the market return of 5.77% [3] - Despite bearish sentiment regarding U.S. consumer spending, recent data indicates a rebound in consumer confidence, particularly among high-income households [3][6] - High-income consumers are benefiting from higher savings and stable mortgage rates, which positions American Express favorably [3][5] Consumer Confidence Rebound - The University of Michigan's Consumer Sentiment Index increased by 1.5 points in August, marking the first rise after four months of decline [6] - A 10% surge in long-term economic expectations contributed to this improvement, with consumer sentiment now 36% higher than the historic low in June 2022 [6] - EY's Future Consumer Index shows 47% of respondents expressing a positive outlook, with 61% feeling in control of their lives despite rising living costs [7] Company Performance - Over the last 12 months, American Express stock surged by 61.48%, significantly outperforming the S&P 500's 25.11% increase [5] - The company's focus on affluent consumers has resulted in stable credit card metrics and efficient loan operations [3][10] - American Express's return on equity (ROE) stands at 34.51%, well above the sector median of 10.38%, indicating strong capital management [8] Valuation - American Express's forward PEG ratio is 1.27, slightly below the sector median of 1.28, suggesting conservative growth assumptions by the market [8] - The company is expected to trade at a 20% premium to the sector median PEG ratio, indicating potential upside of about 20.9% for shares [8] Bottom Line - American Express has effectively segmented the consumer credit-card market by targeting higher-income consumers, allowing it to capitalize on increasing consumer confidence while mitigating risks associated with lower-income consumers [10] - The company's stable performance in credit card default metrics and resilient customer base supports a bullish outlook for its shares [10]