Despite Dramatic Sell-off, American Express Stands Poised To Thrive In Bear Market

Jun 24, 2022

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  • American Categorical has offered off falling to a brand new 52-week low
  • Amex shares are down 11.7% year-to-date and 29.3% under the document excessive
  • AXP is an efficient worth inventory for the long-term investor amid ongoing turmoil
  • Should you’re fascinated by upgrading your seek for new investing concepts, take a look at InvestingPro+

Bank card big American Categorical (NYSE:) has been enduring heavy turbulence over the previous a number of months as fears over the Federal Reserve’s aggressive price hike plans triggered a broad sell-off in shares of many top-rated firms.

After hitting a document excessive of $199.55 on Feb. 16, AXP tumbled quickly to a low of $136.49 on June 16, its weakest stage since February 2021. The inventory is now down 11.7% year-to-date.

Amex shares have since staged a modest rebound, closing at $141.65 on Thursday, however they nonetheless stand roughly 29% under their all-time excessive.

At present ranges, the New York Metropolis-based cost processing firm—one of many 30 elements of the —has a market cap of $106.1 billion.

AXP Daily Chart

We imagine the dramatic sell-off in AXP has created a superb alternative to purchase the inventory, due to a plethora of optimistic catalysts and developments.

Amex As A Hedge Towards Inflation, Fed Fee Hikes

Due to its wide selection of monetary providers, American Categorical stands to learn straight from an inflationary surroundings. That’s as a result of the bank card firm earns charges as a proportion of cost quantity transactions.

As the price of items and providers goes up, the transaction dimension may even go up, leading to increased charges for American Categorical.

Moreover, since most bank cards have a variable price, there’s a direct correlation to the Fed’s benchmark . Because the Federal Funds price rises, the prime price additionally does, leading to increased bank card charges.

Not like Visa (NYSE:) and Mastercard (NYSE:), American Categorical is each a card issuer and a card processor, letting it hold a extra good portion of charges from the transactions it processes.

Amex is the most important issuer of cost playing cards and the third-largest bank card community within the US. As of Dec. 31, 2019, the corporate had 114.4 million playing cards in power, together with 54.7 million playing cards within the US.

Warren Buffett Loves The Inventory

American Categorical is at the moment one in all Berkshire Hathaway’s (NYSE:) prime inventory holdings, together with names similar to Apple (NASDAQ:), Financial institution of America (NYSE:), Coca-Cola (NYSE:), and Wells Fargo (NYSE:).

The Warren Buffett-owned firm now holds 151.6 million AXP shares, or 20% of all shares excellent. The funding firm’s stake is value practically $24 billion, making AXP its fifth-largest holding.

In actual fact, American Categorical accounts for nearly 8% of Berkshire’s complete fairness portfolio.

Berkshire additionally owns shares of Amex rivals Visa, and Mastercard, though the positions are a lot smaller.

At a price-to-earnings ratio of simply 14.4, American Categorical’ inventory is a relative discount in comparison with V and MA, which commerce at round 36.5 and 32.9 instances earnings, respectively.

Amex inventory additionally trades at a consensus ahead P/E ratio of a below-market 12.8.

With an ample amount of money readily available and comparatively low debt, AXP shares at the moment provide a quarterly payout of $0.52 per share, implying an annualized dividend of $2.08 at a yield of 1.44%.

Analysts Stay Bullish

Many analysts stay usually bullish on AXP, citing its strong long-term outlook. In an Investing.com survey of 25 analysts, 11 rated AXP inventory as a ‘purchase’; 12 rated it as a ‘maintain’, and just one thought of it a ‘promote’.

Amongst these surveyed, the inventory had a roughly 37% upside potential with a median 12-month value goal of $193.41.

AXP Consensus Estimates

Supply: Investing.com

Likewise, in keeping with a number of valuation fashions, together with P/E multiples or terminal values, the common honest worth for American Categorical’ inventory on InvestingPro stands at $192.07, a possible 36% upside from the present market worth.

AXP Fair Value

Supply: InvestingPro

AmEx Q2 Earnings Coming Up

American Categorical, which delivered a first-quarter beat and reaffirmed its steerage for 2022 regardless of a difficult macroeconomic surroundings, is scheduled to report its newest monetary outcomes earlier than the US market opens on Wednesday, July 20.

Consensus estimates name for the bank card firm to submit earnings per share of $2.41 for the second quarter, falling 13.9% from EPS of $2.80 within the year-ago interval.

Income is anticipated to climb 21.1% year-over-year to a document excessive of $12.4 billion, reflecting a strong mixture of rising spending volumes and rising transactions.

Past the top-and-bottom line numbers, buyers will control the efficiency of AmEx’s essential travel-and-entertainment enterprise to see if it could sustain its scorching tempo of development as journey ranges return to pre-pandemic ranges.

Items and providers spending, which grew 21% year-over-year within the previous quarter, may even be in focus.

Backside Line

If it’s adequate for Warren Buffett, it’s adequate for you.

Between its engaging valuation, dependably worthwhile enterprise mannequin, and massive money pile, American Categorical inventory appears to be a strong guess for the present bear market surroundings.

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