Is American Express a Stock for Value Investors?



Lower valuations

American Express (AXP) has most recently posted strong revenue numbers, mainly due to the growth of its billed business. Wall Street analysts have given a price target of $84.84 on the stock, which implies a rise of 0.6% from its current price level.

Amex has delivered ROA (return on assets) of ~3.3% and ROE (return on equity) of ~25.1% on a TTM (trailing-12-month) basis. Amex had been able to capture investors’ attention during the past few months on the back of such payout ratios. Amex’s management has a positive outlook for 2H17, given its cost-reduction initiatives.

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Price-to-book ratio

Amex’s current PB (price-to-book) ratio stands at ~3.6x, which is lower than its competitors’ average PB ratio of ~11.4x.

Amex’s lower valuations, meanwhile, have made it a top pick for some value investors as the company is expected to post revenues of nearly $8.2 billion in 2Q17 on the back of organic growth. This organic growth can be achieved with the help of existing customers, and growth in the merchant network could also be a major contributor.

Peer ratios

American Express (AXP) has a lower PB ratio than the following consumer financial peers (XLF):

  • MasterCard (MA): ~23.4x
  • Visa (V): ~8.6x

But Discover Financial Services (DFS) has a PB ratio of nearly 2.2x, which is lower than that of Amex.


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