Could Amex Recover from Its Discounted Valuation?



Lower valuation

Wall Street analysts expect American Express (AXP) stock to reach $89.50 within one year. This estimate represents a 3.3% price increase. The company’s US consumer services division’s income fell substantially between 1H16 and 1H17. However, the company managed to reduce its marketing, promotion, and other expenses in its global merchant services division.

American Express has a one-year forward PE price-to-earnings ratio of 15.1x, whereas its competitors’ average ratio is 26.1x. Competitors’ ratios are as follows:

  • PayPal Holdings (PYPL): 46.0x
  • Total System Services (TSS): 22.0x
  • Capital One Financial (COF): 10.4x

American Express is expected to report EPS (earnings per share) of $1.47 in 3Q17, flat with its 2Q17 EPS. Its valuation could rise in the next few months, as the company has launched a new credit card with zero annual fees, Blue Delta SkyMiles. The card was made available on September 7, 2017.

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Price-to-cash flow ratio

American Express has a TTM (trailing-12-month) price-to-cash flow ratio of 8.2x. Other consumer financial players’ (XLF) ratios are as follows:

  • MasterCard (MA): 33.9x
  • Total System Services (TSS): 16.0x
  • PayPal Holdings (PYPL): 22.0x

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