Financial Services Stocks

American Express Company Valuation – May 2016 $AXP

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how American Express Company (AXP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): American Express Company is a services company. The Company’s principal products and services are charge and credit payment card products, and travel-related services offered to consumers and businesses around the world. The Company’s segments include U.S. Consumer Services (USCS), International Consumer and Network Services (ICNS), Global Commercial Services (GCS) and Global Merchant Services (GMS). The USCS segment includes the U.S. Consumer Card Services business and travel services in the United States. The ICNS segment includes the International Consumer Card Services business, Global Network Services (GNS) business and travel services outside the United States. The GCS segment includes the Global Corporate Payments (GCP) business, small business services businesses in the United States and internationally, merchant financing products and foreign exchange services operations. The GMS segment includes the Global Merchant Services business and global loyalty coalition businesses.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AXP – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $58,839,094,843 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 118.12% Pass
5. Moderate PEmg Ratio PEmg < 20 12.41 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.93 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AXP value Chart May 2016

EPSmg $5.09
MG Growth Estimate 7.28%
MG Value $117.34
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $73.79
MG Value based on 0% Growth $43.25
Market Implied Growth Rate 1.96%
Current Price $63.16
% of Intrinsic Value 53.83%

American Express Company qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.43 in 2012 to an estimated $5.09 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.95% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

American Express Company performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

AXP Charts May 2016

Graham Number $49.96
PEmg 12.41
PB Ratio 2.93
Current Dividend $1.16
Dividend Yield 1.84%
Number of Consecutive Years of Dividend Growth 1

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Useful Links:

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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-term Debt $47,311,000,000
Total Assets $158,816,000,000
Intangible Assets $0
Total Liabilities $138,089,000,000
Shares Outstanding (Diluted Average) 963,000,000

Earnings Per Share History

Next Fiscal Year Estimate $5.16
12/1/2015 $5.05
12/1/2014 $5.56
12/1/2013 $4.88
12/1/2012 $3.89
12/1/2011 $4.12
12/1/2010 $3.35
12/1/2009 $1.54
12/1/2008 $2.33
12/1/2007 $3.36
12/1/2006 $2.99
12/1/2005 $2.97
12/1/2004 $2.68
12/1/2003 $2.30
12/1/2002 $2.01
12/1/2001 $0.98
12/1/2000 $2.07
12/1/1999 $1.81
12/1/1998 $1.54
12/1/1997 $1.38
12/1/1996 $1.30

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.09
12/1/2015 $4.94
12/1/2014 $4.71
12/1/2013 $4.04
12/1/2012 $3.43
12/1/2011 $3.11
12/1/2010 $2.64
12/1/2009 $2.40
12/1/2008 $2.85
12/1/2007 $3.02
12/1/2006 $2.77
12/1/2005 $2.50
12/1/2004 $2.18
12/1/2003 $1.90
12/1/2002 $1.69
12/1/2001 $1.54
12/1/2000 $1.75

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – January 2016
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – November 2015
5 Undervalued Dow Stocks to Research – November 2015
10 Best Stocks For Value Investors This Week – 10/31/15
American Express Company Valuation – October 2015 Update $AXP

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T.Rowe Price Group Inc Stock Valuation – February 2016 $TROW
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Capital One Financial Corp Valuation – January 2016 Update $COF
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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