Company Reports

American Express has enjoyed several years of accelerated growth as the company's payment volume benefited from a recovery in travel and entertainment spending while growing momentum with younger demographics drove record new card acquisitions. American Express' shift toward a younger cardholder base has also supported significant loan growth, with net interest income increasing more than 69% from 2021 to 2023. That said, American Express still generates more than 75% of its revenue through noninterest income, with its largest source of revenue being the discount rate charged to merchants when they accept payments. This means that the level of consumer spending has a direct impact on the company's revenue.

Wide-moat American Express reported strong first-quarter earnings as it benefited from impressive net interest income growth and well-controlled expenses. Net revenue increased 11% from last year to $15.8 billion, while earnings per share increased 39% to $3.33. These results translate to a return on average equity of 33.4%. As we incorporate these results, we do not plan to materially alter our $190 fair value estimate.

American Express has enjoyed several years of accelerated growth as the company's payment volume benefited from a recovery in travel and entertainment spending while growing momentum with younger demographics drove record new card acquisitions. American Express' shift toward a younger cardholder base has also supported significant loan growth, with net interest income increasing more than 69% from 2021 to 2023. That said, American Express still generates nearly 80% of its revenue through noninterest income, with its largest source of revenue being the discount rate charged to merchants when they accept payments. This means that the level of consumer spending has a direct impact on the company's revenue.

Returning to American Express following earnings, we are increasing our fair value estimate for American Express by 7% to $190 from $178. Our new fair value estimate translates to 14.8 times our projected 2024 earnings.

American Express has enjoyed several years of accelerated growth as the company's payment volume benefited from a recovery in travel and entertainment spending while growing momentum with younger demographics drove record new card acquisitions. American Express' shift toward a younger cardholder base has also supported significant loan growth, with net interest income increasing more than 69% from 2021 to 2023. That said, American Express still generates nearly 80% of its revenue through noninterest income, with its largest source of revenue being the discount rate charged to merchants when they accept payments. This means that the level of consumer spending has a direct impact on the company's revenue.

Wide-moat American Express reported solid fourth-quarter 2023 earnings that were roughly in line with our expectations as strong net interest income more than offset slow spending growth on the company's commercial cards. Net revenue increased 11% from last year and 2.7% from last quarter to $15.8 billion, and net income increased 23% from last year to $1.9 billion. As we incorporate these results, we expect to increase our $178 per-share fair value estimate by a low-single-digit to mid-single-digit percent.

Wide-moat-rated American Express reported strong third-quarter earnings as strong consumer spending volume and a jump in net interest income more than offset meager commercial spending growth. Net revenue increased 13% from last year and 2.2% from last quarter to $15.4 billion. Earnings per share rose 33% to $3.30, though the company did benefit from its effective tax rate falling to 20.9% from 23.6%, which translates to a return on equity of 36.3%. As we incorporate these results, we do not plan to change our $178 fair value estimate, and we see the shares as modestly undervalued.

Circling back to American Express following earnings, we are raising our fair value estimate to $178 from $169, which translates to a 2023 price/earnings multiple of 16 times, as American Express’ growth momentum has remained more resilient in 2023 than we had initially expected. Around $4 of the increase comes from earnings since our update, while higher net interest income and fee income expectations increased our fair value estimate by around $3 and $2, respectively. We have also adjusted our near-term discount revenue expectations slightly higher, but this was largely offset by higher credit expenses, a consequence of American Express’ rapidly expanding loan book.

American Express enjoyed strong tailwinds in 2022 as the company's payment volume benefited from a recovery in travel and entertainment spending (roughly 30% of prepandemic billings) while growing momentum with younger demographics drove record new card acquisitions. American Express generates more than 80% of its revenue through noninterest income, with its largest source of revenue being the discount rate charged to merchants when they accept payments. This means that the level of consumer spending has a direct impact on the company's revenue while new cardholders drive additional revenue, regardless of borrowing habits.

Wide-moat-rated American Express reported decent second-quarter results that were modestly above our expectations, thanks to strong travel spending and net interest income growth. Net revenue increased 12% to $15.05 billion, and earnings per share increased 12% to $2.89. While year-over-year revenue growth did decelerate from the first quarter, this was expected as American Express is no longer benefiting from easy comparisons with pandemic-affected results. As we incorporate the strong loan growth and new card signups this year into our model, we anticipate that our $169 fair value estimate may rise by a mid-single-digit percentage. We still expect to view the shares as roughly fairly valued after the update, however.

Wide-moat-rated American Express reported strong first-quarter earnings as robust travel spending growth, particularly international travel spending, drove higher spending volume growth, while rising rates and higher loan balances led to rapid net interest income growth. This impressive revenue growth was offset, however, by higher credit costs. Net revenue increased 22% from last year to $14.3 billion, while earnings per share was down 12% to $2.41. This translates into a return on equity of 28.7%. The decline in earnings was due to a higher provisioning expense, which increased to $1.06 billion from a benefit of $33 million in the year-ago period. As we incorporate these results, we do not plan to materially alter our $169 per share fair value estimate.

Many of the credit card-focused firms under our coverage have developed deep discounts to our fair value estimates as concerns about rising credit costs have been aggravated by recent turmoil in the banking sector following the failure of Silicon Valley Bank. While the market has gone too far in discounting many of these names, the concern is not entirely unwarranted. Rising interest rates, debt levels, and shelter costs have increased financial pressure on consumers as a larger portion of their income becomes tied up in servicing financial obligations, and we expect this pressure to continue to build in the near term.

American Express enjoyed strong tailwinds in 2022 as the company’s payment volume benefited from a recovery in travel and entertainment spending (roughly 30% of prepandemic billings) while growing momentum with younger demographics drove record new card acquisitions. American Express generates more than 80% of its revenue through noninterest income, with its largest source of revenue being the discount rate charged to merchants when they accept payments. This means that the level of consumer spending has a direct impact on the company’s revenue while new cardholders drive additional revenue, regardless of borrowing habits.

Wide-moat-rated American Express reported strong fourth-quarter earnings as the company continues to see strong usage and interest in its premium credit cards. Net revenue increased 17% from last year to $14.2 billion. Earnings per share of $2.08 were down 5% from the prior year’s quarter, which translates to a return on equity of 34.1%. The decline in earnings was due to a higher provisioning expense, which increased to $1.03 billion from only $53 million last year. We see this as a return to normal provisioning behavior and not a sign of sudden credit deterioration, as the firm’s 2021 results benefited from significant reserve releases. As we incorporate these results, we do not plan to materially alter our $166 fair value estimate for American Express.

American Express enjoyed strong tailwinds in 2022 as the company’s payment volume benefited from a recovery in travel and entertainment spending (roughly 30% of prepandemic billings) while growing momentum with younger demographics drove record new card acquisitions. American Express generates more than 80% of its revenue through noninterest income, with its largest source of revenue being the discount rate charged to merchants when they accept payment from one of its cardholders. This means that the level of travel and entertainment spending has a direct impact on the company’s revenue while new cardholders drive additional revenue, regardless of borrowing habits.

Wide-moat American Express reported decent third-quarter results as it continues to benefit from a growing cardholder base and more average spending per card. Net revenue rose 24% year over year and 1.2% sequentially to $13.56 billion, with the slow sequential growth standing out. Earnings per share growth was more muted, at 9% to $2.47. Bottom-line results were affected by a $778 million provisioning expense versus a $191 million benefit last year. We see the increase in credit reserves as a return to normal provisioning behavior, not a sign of sudden credit deterioration, as write-offs remain well below normal levels. As we incorporate these results, we do not plan to materially alter our $166 fair value estimate.

Wide-moat American Express reported strong second-quarter results that came in above our expectations as an accelerated recovery in international and corporate travel spending provided a boost. Net revenue grew 31% from last year to $13.4 billion, while earnings per share fell 8% to $2.57. The drop in EPS was primarily due to higher credit loss provisioning, with the firm building $58 million in reserves (versus an $866 million release last year). We see the increase in reserves as a return to normal provisioning behavior, not a consequence of weak underwriting. As we incorporate these results, we do not plan to materially alter our $166 fair value estimate.

American Express has enjoyed a strong start to 2022 as the company’s payment volume benefited from a recovery in travel and entertainment spending (roughly 30% of prepandemic billings) as pandemic fears faded. American Express generates more than 80% of its revenue through noninterest income, with its largest source of revenue being the discount rate charged to merchants when they accept payment from one of its cardholders. This means that a recovery in travel and entertainment spending has a direct impact on the company’s revenue.

We went into this year’s Federal Reserve bank stress tests expecting a bit more pressure on stress capital buffers as multiple banks had warned in the preceding quarter that their SCB was likely to increase. This is indeed what played out, as we estimate that roughly seven of the 20 U.S. banks we cover that participated this year are likely to see a higher SCB once the assigned SCBs become official. It appears that JPMorgan, Bank of America, and Citigroup are all likely to see increases to their SCBs of close to 1% each. The biggest increase seems likely to come from M&T Bank, which we expect to increase close to 2.2%, going from 2.5% to roughly 4.7%. Meanwhile, we expect the SCB for 11 of the 20 U.S. banks we cover to remain stable, including for Wells Fargo, which had previously warned that their SCB could go up, so this is a slight positive surprise for the bank in our view. Finally, we think Goldman Sachs could see a slight decrease to its current SCB of 6.2%, potentially declining to 6%, while Discover could see a more material decline, going from 3.6% to 2.5%.

Wide-moat American Express posted strong first-quarter results in line with our expectations as a continued recovery in travel spending and strong demand for its premium cards acted as tailwinds. Net revenue grew 29% to $11.7 billion while earnings per share came in at $2.73, a penny below last year’s quarter. That said, last year’s results are a difficult comparison as they benefited from a $1.05 billion release in credit reserves. There was nothing in the release to change our thesis for American Express, and we will maintain our $173 fair value estimate.