Credit card usage has soared over the past several years, allowing credit card company American Express (AXP) to grow at an incredible pace. Its top line has consistently grown by single digits over the past five years (if you don’t include 2020), and it is set for further growth as travel demand picks up post-pandemic.
However, rising inflation has weighed on consumer spending and resulted in credit card defaults, weakening the post-pandemic recovery.
Nonetheless, AXP’s diverse and loyal customer base has allowed the company to survive the economic downturn and yield positive results lately. Hence, the company’s financials and growth catalysts make it highly attractive. We are bullish on the stock.
American Express Pulls Itself Together Post-Pandemic
Like other credit card providers, American Express’s business took a hit during the pandemic. However, it quickly expanded its services to target a new, younger population of affluent U.S. citizens. This growth strategy helped the company incentivize more people to sign up for credit cards and bolster Amex’s brand.
Now that the pandemic is ending, American Express is back in action. The company has enjoyed high sales due to the surge in travel spending. According to AXP’s quarterly reports, travel spending reached pre-pandemic levels for the first time in March.
Fortunately, Travel and Entertainment spending more than doubled during the quarter, up 121%. According to the company’s CEO, Stephen Squeri, future travel bookings were up 37% in the U.S. and 48% globally compared to 2019.
This level of rebound in travel and entertainment represents a growth catalyst for the next while. Therefore, you may want to keep AXP stock on your radar.
American Express: Excellent Q1-2022 Results
In April, AXP reported a solid first quarter due to continued business momentum. The company’s revenue jumped 29.5% year-over-year, amounting to $11.7 billion. Moreover, its earnings per share stood at $2.74, pushing past Wall Street estimates by more than 11%.
The company’s network volumes rose 30% year-over-year to $350.3 billion in the first quarter, thanks to increased spending. Similarly, net write-offs remained low, indicating that the enterprise faced fewer issues concerning the deterioration in credit quality.
Furthermore, American Express ended the first quarter with cash and equivalents of $28 billion, a sequential increase of $6 billion. In addition, AXP’s debt decreased from $39 billion at the end of 2021 to $38 billion as of March 2022.
Analysts expect the company’s revenue to grow 19.4% for full-year 2022. At the same time, earnings are expected to decline 2.5% to $9.77 per share.
The company’s dividend program and share buybacks also offer great incentives for investors. Shares of American Express jumped 0.6% on March 10 after the company announced a 20% hike in its quarterly dividend.
American Express has remained a regular dividend-paying company for over three decades, which is highly commendable. In addition, the company has been consistent with its share buyback program to reward existing shareholders.
These buybacks and dividends paint a robust picture of the company despite the volatile environment. Moreover, it has enough cash to invest in its future without running out of money anytime soon.
Hence, American Express looks like a promising investment considering its profitable results, growth prospects, and valuation (which I mentioned in the conclusion).
Wall Street’s Take on AXP Stock
Turning to Wall Street, AXP stock maintains a Moderate Buy consensus rating. Out of 18 analyst ratings, nine Buys, nine Holds, and zero Sell ratings were assigned over the past three months.
The average AXP stock price target is $178.31, implying 19.8% upside potential. Analyst price targets range from a low of $143 per share to a high of $210 per share.
Conclusion – AXP Stock Can Reward Investors
American Express appears undervalued and is trading at just 2.2 times forward sales. Moreover, AXP’s management is optimistic, given its strong first-quarter report, encouraging outlook, and recent dividend hikes.
In addition, the company has plenty of cash on its balance sheet. In the coming months, the rebound in travel demand should continue pushing AXP stock. Therefore, I expect another solid showing in the upcoming quarters and the full year. The company reports its Q2 results on July 22.
Overall, American Express looks like a stock that could reap considerable returns in the future and serve as a staple for investors’ portfolios.
