On Wednesday, Evercore ISI updated its financial outlook for American Express (NYSE:AXP), increasing the price target to $255 from the previous $243 while maintaining an In Line rating. The adjustment follows American Express's first-quarter results for 2024, which led to a slight increase in earnings per share (EPS) estimates for 2024 and 2025. The new EPS forecasts are now $13.03 and $14.95, up from $12.99 and $14.93, respectively.
The revised EPS estimates reflect a more positive view on net interest income (NII) and a slight increase in discount revenue, which are somewhat balanced by anticipated rises in expenses and loan loss provisions (LLP). Despite the first-quarter performance exceeding expectations, Evercore ISI anticipates higher variable costs, now predicted to be 42% of total revenue compared to the prior 41%, along with slightly increased operating costs, which are expected to be offset by reduced marketing expenses.
Evercore ISI also forecasts that American Express will continue to build reserves throughout the year, culminating in a fourth-quarter reserve ratio of 2.98%. The firm expresses a cautiously optimistic stance on the fundamental outlook for American Express, acknowledging a strong revenue trajectory even with a potential slowdown in network volumes. The firm also notes that American Express has managed to keep expenses under control in a competitive environment.
The report highlights confidence in American Express's earnings and return trajectory, citing well-managed credit exposure and ongoing capital return as positive factors. However, it also points out that variable expense growth may surpass revenue growth in upcoming quarters. Despite these concerns, the firm's outlook on the company's financial health remains positive.
The new price target of $255 reflects higher sector multiples, according to Evercore ISI. The firm's stance is that the current share valuation, which is at 18.3 times the firm's 2024 EPS estimate, already accounts for the positive fundamental outlook.
Historically, American Express has traded at an average 13 times discount compared to Visa (NYSE:V) and MasterCard on next twelve months (NTM) earnings, whereas it currently stands at an 11 times discount.
InvestingPro Insights
As we delve into the financial health and performance prospects of American Express (NYSE:AXP), recent data from InvestingPro offers additional context. American Express is currently trading at a Price/Earnings (P/E) ratio of 19.59, which is considered low relative to near-term earnings growth, potentially indicating an undervalued stock. The company's PEG ratio, which stands at 0.69, further suggests that the stock may be priced attractively in relation to its expected growth rates.
With a market capitalization of $171.88 billion and a strong return on assets of 3.56% for the last twelve months as of Q1 2024, American Express showcases robust financial stature. The company's performance has also been noteworthy, with a significant 9.78% return over the last week and a 50.88% return over the past year, highlighting its resilience and appeal to investors.
For those considering a deeper analysis, there are additional InvestingPro Tips available, including insights on American Express's position as a prominent player in the Consumer Finance industry and its commendable track record of maintaining dividend payments for 54 consecutive years. To explore these tips and more, visit https://www.investing.com/pro/AXP and take advantage of the exclusive offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, there are 13 more InvestingPro Tips available for American Express, providing a wealth of information for investors looking to make informed decisions.
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