Customer Loyalty And Technology Ecosystem Will Drive Future Success

Key Takeaways

• Strong premium customer retention and strategic investments are expected to drive growth in card spending, revenue, and customer engagement.
  
• Targeted acquisitions and flexible expenses bolster margins, attract SMEs, and support sustainable long-term growth and earnings.
  
• Macroeconomic uncertainty and market fluctuations could negatively impact American Express's revenue growth, particularly affecting consumer spending, T&E, and small business segments.

Catalysts

Operates as integrated payments company in the United States, Europe, the Middle East and Africa, the Asia Pacific, Australia, New Zealand, Latin America, Canada, the Caribbean, and Internationally.

• Strong performance in retaining and increasing the premium customer base, particularly affluent and high-spending Millennials and Gen Z, is expected to drive continued growth in card member spending and revenue.
  
• The strategic investments in enhancing product offerings and experiences, such as refreshes and expanding fee-paying products, are anticipated to support revenue growth through increased card fees and customer engagement.
  
• The company’s leverage over expenses, highlighted by flexible marketing and operational expenditures, provides an opportunity to maintain profit margins and potentially increase earnings in various economic scenarios.
  
• The expansion of the technology and product ecosystem, including recent acquisitions like Center, is expected to attract more SME clients and drive organic spend growth, positively impacting both revenue and long-term growth potential.
  
• Ongoing strategic investments in technology infrastructure and enhanced service levels underscore a commitment to long-term growth objectives, which could translate into sustainable increases in net margins and overall earnings.

American Express Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming American Express's revenue will grow by 10.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.3% today to 16.0% in 3 years time.
• Analysts expect earnings to reach $13.5 billion (and earnings per share of $20.09) by about April 2028, up from $10.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.3x on those 2028 earnings, down from 17.4x today. This future PE is greater than the current PE for the US Consumer Finance industry at 9.7x.
• Analysts expect the number of shares outstanding to decline by 2.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.33%, as per the Simply Wall St company report.

American Express Future Earnings Per Share Growth

Risks

• Macroeconomic uncertainty, including a projection of up to 5.7% unemployment, could negatively impact consumer spending and small business revenue, ultimately affecting American Express’s revenue growth.
  
• A sequential slowdown in airline billings growth, as observed in the first quarter, could be a risk to overall T&E revenue growth if it indicates a longer-term trend.
  
• Small business spending may be vulnerable to market fluctuations and pricing pressures, which could lead to decreased transaction volumes and lower revenue from this segment.
  
• Heightened credit risk from changes in the macroeconomic environment could affect credit performance, potentially impacting net margins through increased provisions and write-offs.
  
• Changes in currency exchange rates, particularly the strengthening of the U.S. dollar, present continued headwinds to reported revenue growth which can affect earnings.

Valuation

• The analysts have a consensus price target of $290.999 for American Express based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $371.0, and the most bearish reporting a price target of just $230.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $84.5 billion, earnings will come to $13.5 billion, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $252.42, the analyst price target of $291.0 is 13.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.