Last Update 24 Jan 26
Fair value Increased 22%AXP: Elevated P E Multiples Will Face Regulatory Credit Card Rate Cap Test
Analysts have raised their implied fair value for American Express from about US$230 to roughly US$280, reflecting updated price targets that apply higher future P/E multiples and slightly stronger assumptions for revenue growth and profit margins.
Analyst Commentary
Across recent research, most price target changes for American Express have been upward, but the tone is not uniformly optimistic. Several firms have lifted targets while keeping neutral or cautious ratings. This signals that some on the Street see better credit conditions and macro trends, yet still question how much upside is left at current valuation levels.
Even within bullish research, commentary often highlights risks around credit quality, regulation, and macro sensitivity, especially for card issuers. References to potential interest rate caps on credit cards and ongoing scrutiny of consumer finance point to a backdrop where execution on growth, risk management, and pricing power will be closely watched.
For you as an investor, this mix of raised targets and restrained ratings suggests that expectations are higher, but not all analysts are comfortable treating American Express as a straightforward growth story without meaningful risk checks.
Bearish Takeaways
- Bearish analysts have raised price targets while still maintaining cautious or negative ratings. This hints that higher valuation is driven more by sector-wide multiple changes than by a clear shift in conviction on American Express execution or growth.
- Some research on consumer and specialty finance points to credit as a key swing factor. If credit metrics or reserve assumptions change, the current set of targets could face pressure, especially where analysts already frame their stance as defensive.
- Discussion of potential policy moves to cap credit card interest rates, highlighted by JPMorgan, introduces regulatory uncertainty that could challenge profitability assumptions and raise the risk that current P/E multiples prove optimistic.
- Where analysts describe consumer credit conditions as resilient but fragile, the message is that any weakening in employment or subprime credit performance could quickly test the growth and return expectations now embedded in updated price targets.
What's in the News
- JPMorgan CEO publicly warned that proposed caps on credit card interest rates could be a "disaster" for the sector, keeping regulatory risk in focus for issuers such as American Express (Reuters).
- American Express announced expanded Las Vegas offerings for Card Members, including premium restaurant access via Resy, added luxury hotel options through Fine Hotels + Resorts and The Hotel Collection, and on site experiences at the Formula 1 Heineken Las Vegas Grand Prix.
- The company plans an American Express Fan Experience and Trackside Lounge at the 2025 Las Vegas Grand Prix, featuring interactive F1 themed activities, exclusive cocktails, and reserved viewing areas for eligible Platinum Card Members, with capacity limits applying.
- American Express introduced "1850 by American Express," a pop up destination at ARIA Resort & Casino on the Las Vegas Strip, offering Platinum and Centurion Members complimentary light bites, specialty cocktails, DJ sets, and access to exclusive, ticketed experiences around events such as the F1 Las Vegas Grand Prix and NBA Emirates Cup.
Valuation Changes
- Fair Value: implied fair value moved from about US$230.00 to roughly US$280.30, representing a sizeable uplift in the valuation anchor used in recent analysis.
- Discount Rate: discount rate assumptions shifted from 7.43% to 8.36%, a moderate rise that generally makes future cash flows less valuable in models.
- Revenue Growth: projected revenue growth adjusted from 8.99% to 11.19%, reflecting a clear step up in expectations for top line expansion.
- Net Profit Margin: forecast net profit margin moved from 15.17% to 15.38%, indicating a small change that still points to slightly stronger profitability assumptions.
- Future P/E: future P/E multiple increased from 15.14x to 16.77x, suggesting that a higher valuation multiple is being applied to expected earnings.
Key Takeaways
- Deceleration in airline and entertainment spending may weaken future revenue growth projections, impacting overall revenue growth expectations.
- Macroeconomic uncertainties and spending challenges threaten revenue targets, exacerbated by rising reward expenses and potential spending contractions among small businesses.
- Strong customer spending, effective cost control, and a diversified revenue base position American Express to achieve stable revenue and withstand economic fluctuations.
Catalysts
About American Express- 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.
- The deceleration in airline spending suggests that future revenue growth from travel and entertainment segments could weaken, impacting American Express's overall revenue growth expectations.
- The heightened macroeconomic uncertainty, including potential unemployment rate increases to levels like 5.7%, could pressurize spending and earnings, creating challenges for hitting revenue and EPS targets.
- There are ongoing cost pressures from rewards expenses which grew 16% year-over-year, potentially compressing net margins if these expenses cannot be offset by revenue growth.
- Small businesses might face pressure due to potential economic challenges, negatively affecting spending volumes in this key American Express segment, which could impact overall revenue and profitability.
- If consumer spending pulls back or becomes volatile, particularly in the Millennial and Gen Z demographics, this could slow growth in card fee revenues, as these cohorts currently drive a significant portion of new account growth and spending.
American Express Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- This narrative explores a more pessimistic perspective on American Express compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
- The bearish analysts are assuming American Express's revenue will grow by 9.0% annually over the next 3 years.
- The bearish analysts assume that profit margins will shrink from 16.3% today to 15.2% in 3 years time.
- The bearish analysts expect earnings to reach $12.2 billion (and earnings per share of $18.52) by about May 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 price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, down from 19.1x 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 7.43%, as per the Simply Wall St company report.
American Express Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- American Express has a premium customer base that continues to spend at healthy levels, with growth in spending on goods and services, supporting strong revenue performance.
- The company has significant expense leverage and flexibility due to its scale, enabling effective cost control and protection of profit margins even when investing for the long term.
- Retention rates are high and card fee growth was up 20%, both supporting a stable and potentially increasing revenue stream from existing and new customers.
- The business model is less reliant on lending revenues and is better positioned to withstand credit cycles, which may lead to stable earnings even during economic downturns.
- International Card Services spending showed strong growth across geographies, indicating a diversified revenue base that could help mitigate risks associated with economic volatility in specific regions.
Valuation
How have all the factors above been brought together to estimate a fair value?- The assumed bearish price target for American Express is $230.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of American Express's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
- 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 bearish analysts, you'd need to believe that by 2028, revenues will be $80.3 billion, earnings will come to $12.2 billion, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 7.4%.
- Given the current share price of $276.24, the bearish analyst price target of $230.0 is 20.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
- 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.
Have other thoughts on American Express?
Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.
Create NarrativeHow well do narratives help inform your perspective?
Disclaimer
AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
