Positive Outlook for American Express: Is Now the Time to Invest?

American Express Company (AXP) has recently closed its fiscal year 2024 on a strong note, showcasing impressive fourth-quarter results. The company saw significant growth, primarily driven by increased card member spending and a surge in fees, along with successful customer acquisitions, particularly among Millennials and Generation Z.

Highlights from American Express’s Fourth Quarter

EPS: The company reported earnings per share of $3.04, which surpassed estimates by 0.33% and represented a 16% year-over-year increase.

Network Volumes: American Express achieved network volumes of $464 billion, marking a 7% year-over-year rise.

Commercial Services: The pre-tax income from commercial services reached $814 million, an increase of 22% compared to the previous year.

Revenue Outlook: For 2025, the company anticipates an 8-10% growth in revenue, aiming to push beyond $65.9 billion from 2024.

EPS Guidance: American Express is projecting earnings per share between $15 and $15.50 for 2025, a notable increase from $13.35 in 2024.

Stay updated with a comprehensive earnings calendar for further insights.

With favorable momentum driving its business, American Express remains confident about its future growth trajectory.

Revised Earnings Estimates for American Express

In the past month, American Express has seen an upward revision in its earnings estimates for 2025 and 2026. The Zacks Consensus Estimate now indicates a projected 14.9% year-over-year increase for 2025 earnings, with an expected growth of 14.4% for 2026. Revenue estimates for these years suggest a growth of 8.6% and 8.3%, respectively.

American Express has a solid history of beating earnings estimates, achieving an average surprise of 6.9% over the last four quarters.

Stock Performance of American Express

Following an initial sell-off after its earnings report, attributed to various macroeconomic factors, American Express experienced a strong rebound as investors recognized its growth potential. Over the past three months, AXP stock increased by 11.3%, outperforming both the industry and the S&P 500 Index. In comparison, competitors like Mastercard Incorporated and Synchrony Financial saw stock gains of 8.1% and 6.9%, respectively.

Valuation Insights on American Express

On the valuation front, American Express is trading at a premium, indicating strong investor confidence and optimism regarding its future growth prospects in the payments sector. The company's price-to-earnings ratio stands at 20.61, surpassing the industry average of 17.23.

Reasons for Continued Growth at American Express

American Express thrives by uniquely operating as both a bank and a credit card network. This dual role enables the company to maintain strong profitability through excellent credit management and operational efficiency while increasing card member spending and expanding lending activities.

Notably, investor Warren Buffett has held onto American Express stock for decades, attracted by its robust business model. Unlike many competitors, American Express serves as both the issuer and the network operator, allowing it to capture a larger share of transaction revenue, making its operations more profitable than those of some of the largest players in the payment industry.

The company boasts a loyal customer base, impressive card acquisition rates, and strong retention levels. American Express anticipates continued revenue growth, particularly from its premium clientele. Additionally, there is a renewed focus on marketing towards younger generations, particularly Gen Z and Millennials, aiming to foster long-term brand loyalty. Although these groups may currently spend less, the company views this strategy as vital for future growth.

Financially, American Express is well-positioned, with a net debt-to-capital ratio of just 6.9%, well below the industry average of 13.4%. The firm also returned value to shareholders by repurchasing 3 million shares in the fourth quarter of 2024 and plans to increase its dividend by 17%, bringing it to 82 cents per share starting in the first quarter of 2025.

Should You Consider Investing in American Express?

As spring approaches, there is a strong likelihood that stocks, especially in the financial sector, will see positive performance due to seasonal trends and economic cycles. With tax refunds coming into play, analysts predict an upsurge in consumer spending, which will consequently drive higher loan demand and transaction volumes for financial institutions. American Express, with its expanding network, stands to benefit greatly from this trend, appealing particularly to investors seeking short-term gains.

For long-term investors, the ongoing evolution of American Express's customer base is a positive development. The company's transition into a desirable status symbol among younger consumers presents a compelling growth opportunity. Moreover, American Express is currently trading above its 50-day and 200-day simple moving averages, indicating strong upward momentum.

Given its combination of value, growth potential, and resilience, American Express is a worthy addition to any investment portfolio. Currently, the stock holds a Zacks Rank #2 (Buy).Finance, Stocks, Investing