AmEx is Holding Strong: But is That Enough for Investors Right Now?

Globe and Mail

16-05-2025

American Express Company AXP continues to showcase the strength of its premium brand in a volatile macroeconomic environment. Backed by a high-spending, affluent customer base and consistent earnings performance, the company has held up better than many of its peers. As one of Berkshire Hathaway's longest-standing holdings, AmEx is often regarded as a quality name. However, it's not immune to global headwinds. From tariff-related uncertainties to evolving credit risk dynamics and shifting consumer behaviors, near-term upside potential could be limited, even with a strong foundation in place.
AmEx shares have gained 24.1% over the past year, outperforming the S&P 500's 11.2% growth and the broader industry 's 10% growth. Meanwhile, larger peers like Visa Inc. V and Mastercard Incorporated MA have done even better, gaining 29.5% and 26.9%, respectively.
Price Performance – AXP, V, MA, Industry & S&P 500
AXP's Valuation Picture
At first glance, AmEx appears attractively priced. It currently trades at a forward price-to-earnings (P/E) ratio of 18.76X, slightly below the industry average of 18.94X. However, that figure sits above its five-year median of 16.79X, suggesting the stock is relatively expensive by its own historical standards. It has a Value Score of C.
By comparison, Visa and Mastercard command significantly higher multiples, with forward P/E ratios of 29.62X and 34.33X, respectively, reflecting their more scalable, lower-risk business models.
What Sets AmEx Apart
While American Express is often lumped in with traditional credit card companies, its structure is unique. Unlike Visa and Mastercard, which operate only as networks, AmEx is both a card issuer and a bank. This means it earns revenue not only from transaction fees but also from interest on outstanding balances.
This structure offers advantages, especially in rising interest rate environments. While higher rates can curb spending, they also boost AmEx's interest income. Its first-quarter interest income of $6.1 billion increased 6% year over year. Also, its network volumes rose 5% year over year to $439.6 billion, fueled by strong U.S. consumer spending.
AmEx also maintains a healthy balance sheet. As of the end of the first quarter, the company held $52.5 billion in cash and cash equivalents and just $1.6 billion in short-term debt. In 2024, it returned $7.9 billion to shareholders via dividends and share repurchases. It continued that trend in early 2025, returning $1.3 billion in the first quarter alone. In March, the quarterly dividend was raised by 17% to 82 cents per share.
AmEx's strong fundamentals are reinforced by a loyal customer base, high card acquisition rates and strong retention. The stock is trading above both its 50-day and 200-day moving averages: technical signals that indicate sustained upward momentum.
AmEx's Estimates & Earnings Surprise History
The Zacks Consensus Estimate for 2025 EPS is $15.18, indicating 13.7% growth, with 2026 expected to grow another 14%. Revenue projections show year-over-year growth of 8.1% in 2025 and 8% in 2026. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
The company also has a strong history of beating expectations, having exceeded EPS estimates in each of the last four quarters with an average surprise of 5.2%.
American Express Company Price and EPS Surprise
AmEx's Risks to Consider
Despite its strengths, AmEx isn't without risk. The company has heavier exposure to travel and entertainment spending, a segment that can experience sharp downturns during economic slowdowns. Recent growth has been driven by increased spending from Millennials and Gen Z in these categories, making it more vulnerable to shifts in discretionary spending. However, its affluent customer base is likely to be less susceptible to such scenarios.
While American Express shows long-term promise, there are near-term headwinds worth considering. Rising expenses are a concern. AmEx's total costs have steadily increased: up 22% in 2021, 24% in 2022, 10% in 2023, 6% in 2024, and another 10% in the first quarter of 2025. While part of this stems from strong customer engagement and card usage, it still puts pressure on margin growth.
Moreover, American Express remains more domestically focused than Visa and Mastercard, both of which have significantly expanded their global digital payments ecosystems. AmEx's reliance on lending and card volume growth may limit its flexibility in adapting to emerging non-card payment trends. And unlike its network-only peers, AmEx assumes credit risk from its cardholders. This dual role, issuer and processor, means it must manage both operational efficiency and portfolio quality, particularly as economic uncertainty rises.
Final Verdict: Time to Hold
American Express remains a fundamentally strong company with a premium brand, loyal customer base, and a unique dual-role model that generates diverse revenue streams. Its strong balance sheet, consistent shareholder returns, and solid earnings trajectory make it a compelling long-term story.
However, rising costs, credit risk exposure, and macro uncertainties, especially in travel and discretionary spending, limit the stock's near-term upside potential. Given its current valuation and risks, AmEx has a Zacks Rank #3 (Hold) at present. For existing investors, staying the course makes sense. For new entrants, a wait-and-see approach might offer a more attractive entry point down the road.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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