AmEx Stock Trades Near 52-Week High: Is It Still Worth Buying?

Core Viewpoint - American Express Company (AXP) is experiencing strong stock performance and growth potential, driven by favorable market conditions, consumer spending trends, and a solid customer base, particularly among Millennials and Gen-Z [1][3][6]. Stock Performance - AXP closed at $266.17, just 2.3% below its 52-week high of $272.41, with a 16.5% increase in shares over the past three months, outperforming the industry and S&P 500 Index [1][2]. - The stock is trading above its 50-day and 200-day moving averages, indicating strong upward momentum [2]. Interest Rate Impact - The Federal Reserve's recent 50 basis points rate cut is expected to boost consumer spending, benefiting AXP's transaction volumes and top line [3]. - Americans' credit card debt reached a record $1.14 trillion, suggesting increased reliance on credit, which could lead to higher borrowings for AXP [3][4]. Revenue Composition - AXP generates most of its revenue from non-interest income, with 22.8% coming from net interest income, which is influenced by interest rate changes [4]. - Lower interest rates are anticipated to enhance both merchant discount revenues and card loan balances, driving overall growth [4]. Credit Quality - AXP's net charge-off rate increased to 2.2% in August but is expected to stabilize at 2.1% by the end of 2024 [5]. - Delinquency rates remained stable at 1.3%, supported by AXP's premium customer base of high-income consumers [5]. Growth Drivers - Key growth drivers include increased card member spending, fee growth, rising interest income, and a growing customer base among Millennials and Gen-Z [6]. - AXP's card fee revenue growth was 15% in Q2 2024, with expectations for long-term revenue and earnings per share (EPS) growth of 10% and mid-teens, respectively [6]. Customer Segmentation - Gen-Z is projected to become the largest customer segment by 2030, prompting AXP to focus on this demographic for future growth [7]. - Product innovation and strategic partnerships are enhancing AXP's customer engagement and market reach [7]. Shareholder Value - AXP returned value to shareholders through dividend payments and share buybacks, with a dividend yield of 1.1%, higher than Mastercard and Visa [7]. - The company bought back 7 million shares in Q2 2024 and paid a dividend of 70 cents per share [7]. Earnings Estimates - Analysts have revised AXP's earnings estimates upward, with a consensus estimate for 2024 EPS at $13.13, indicating a year-over-year growth of 17.1% [8]. - The 2025 earnings consensus is pegged at $14.9 per share, suggesting a 13.5% increase year-over-year [8]. Valuation - AXP is trading at a forward price/earnings ratio of 18.44X, higher than the industry's average of 14.64X, but still cheaper than peers like Mastercard and Visa [10][12]. - Despite the premium valuation, AXP is considered to have significant upside potential due to its robust business model and positive developments [10]. Final Recommendation - AXP is well-positioned for growth with rising card fees and interest income, supported by a strong customer base [13]. - The company's stable credit quality and shareholder initiatives make it an attractive investment opportunity [13].