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American Express Co Valuation – November 2018 $AXP

Company Profile (excerpt from Reuters): American Express Company, incorporated on June 10, 1965, together with its subsidiaries, is a global services company. The Company’s principal products and services are charge and credit card products, and travel-related services offered to consumers and businesses around the world. The Company’s segments include the Global Consumer Services Group (GCSG), Global Merchant and Network Services (GMNS), and Global Commercial Services (GCS). The Company’s range of products and services includes network services; merchant acquisition and processing, servicing and settlement, and point-of-sale marketing and information products and services for merchants; other fee services, including fraud prevention services and the design and operation of customer loyalty programs; expense management products and services, and stored value/prepaid products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AXP – November 2018

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 $92,499,471,317 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 78.47% Pass
5. Moderate PEmg Ratio PEmg < 20 19.86 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.34 Fail
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

EPSmg $5.45
MG Growth Estimate 2.38%
MG Value $72.33
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $79.06
MG Value based on 0% Growth $46.35
Market Implied Growth Rate 5.68%
Current Price $108.28
% of Intrinsic Value 149.71%

American Express Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.71 in 2014 to an estimated $5.45 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.68% 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 below the price.

At the time of valuation, further research into American Express Company revealed the company was trading above its Graham Number of $59.68. The company pays a dividend of $1.34 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 19.86, which was below the industry average of 33.02, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

American Express Company receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $59.68
PEmg 19.86
PB Ratio 4.34
Dividend Yield 1.24%
TTM Dividend $1.34
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $55,300,000,000
Total Assets $189,092,000,000
Intangible Assets $0
Total Liabilities $167,632,000,000
Shares Outstanding (Diluted Average) 860,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.46
Dec2017 $2.97
Dec2016 $5.65
Dec2015 $5.05
Dec2014 $5.56
Dec2013 $4.88
Dec2012 $3.89
Dec2011 $4.12
Dec2010 $3.35
Dec2009 $1.54
Dec2008 $2.32
Dec2007 $3.36
Dec2006 $2.99
Dec2005 $2.97
Dec2004 $2.68
Dec2003 $2.30
Dec2002 $2.01
Dec2001 $0.98
Dec2000 $2.07
Dec1999 $1.81
Dec1998 $1.54

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.45
Dec2017 $4.57
Dec2016 $5.25
Dec2015 $4.94
Dec2014 $4.71
Dec2013 $4.04
Dec2012 $3.43
Dec2011 $3.11
Dec2010 $2.64
Dec2009 $2.40
Dec2008 $2.84
Dec2007 $3.02
Dec2006 $2.77
Dec2005 $2.50
Dec2004 $2.18
Dec2003 $1.90
Dec2002 $1.69

Recommended Reading:

Other ModernGraham posts about the company

American Express Co. Valuation – February 2018 $AXP
5 Undervalued Dow Components to Research – March 2017
5 Undervalued Dow Components to Research – February 2017
10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017
5 Undervalued Dow Components to Research – December 2016

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Mastercard Inc Valuation – January 2016 Update $MA
Discover Financial Services Inc. Valuation – November 2015 Update $DFS
MasterCard Inc. Analysis – October 2015 Update $MA
Discover Financial Services Analysis – August 2015 Update $DFS
Mastercard Inc. Analysis – June 2015 Update $MA

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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