American Express: A Buy Or Sell After Recent Earnings?

(Preview) Company Update (AXP US) (Neutral)

Summary

• AXP's share price has risen 13.4% since last Tuesday, on the back of new aggressive targets that include a mid-teens EPS CAGR from 2024.

• We continue to be cautious on AXP's business model, as it competes on expensive rewards and co-brands when competing with large banks.

• AXP's Q4 revenues have recovered much less than Visa/Mastercard's, and its pre-provision profit is down despite higher revenues.

• Escalating customer engagement and marketing costs mean pre-provision profit has stagnated through 2021; these costs will rise again in 2022.

• At $178.92, AXP stock is trading at 18.5x guided 2022 EPS, which is not enough to compensate for its long-term business risks. Avoid.

Introduction

American Express Company shares have risen 13.4% since releasing Q4 2021 results last Tuesday (January 25), including up 8.9% on the day.

We initiated our Neutral rating on AXP in March 2019. Since then shares have gained 65.7% (including dividends), in line with Mastercard and 18 ppt ahead of Visa (which ga…