American Express (NYSE:AXP) is one of the few stocks that offers growth at a reasonable price (GARP). For instance, the company’s 19.1x P/E ratio isn’t overstretched, and financial growth is strong for the credit and debit card giant. While the company has been a GARP play for quite some time, its recent earnings report offers additional optimism. Therefore, I am bullish on this stock.
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Rising Revenue and Profit Margins
American Express has consistently increased its revenue and profit margins. The company’s profit margin currently sits in the double digits, and that trend continued in the first quarter of 2024.
Revenue increased by 11% year-over-year, which was within expectations. However, the fintech firm shined with its net income. This metric grew by 34% year-over-year, which resulted in a 15.4% net profit margin.
The company started 2024 on a strong note and is attracting younger generations. Notably, more than 60% of the company’s new customers were Millennials or Gen Z consumers, and new card acquisitions came to 3.4 million in the quarter.
Sure, American Express doesn’t have profit margins as high as Visa (NYSE:V) or Mastercard (NYSE:MA). Visa is the leader, with profit margins regularly above 50%, while Mastercard has profit margins above 40%. Still, American Express has a much lower valuation and similar revenue growth. Plus, American Express’ net income growth comfortably exceeded its competitors’ growth rates.
An Enticing Multi-Year Growth Plan
Investors shouldn’t only look at one quarter. They should assess how a company is likely to perform over several years. A long-term approach can help investors find winners. Luckily, American Express has spelled out its long-term growth ambitions.
Leadership anticipates 9% to 11% revenue growth and EPS growth in the mid-teens beyond 2026. The company achieved both of those benchmarks in the first quarter of 2024 and in previous quarters. For example, the company reported 15% year-over-year revenue growth and 14% year-over-year diluted EPS growth in full-year 2023.
The fintech company’s ambitious growth plans are realistic and suggest that shares are fairly valued. Even after a 9% post-earnings pop, shares look attractive. Long-term gains have also been enticing for patient investors. AXP stock is up 26% year-to-date and has more than doubled over the past five years.
AXP Has Impressive Dividend Growth
American Express regularly rewards its long-term shareholders with buybacks and dividend distributions. It has the elements of a dividend growth stock that can make sense for retirement portfolios and growth-oriented funds.
The stock has a 1.18% yield, which is decent on its own. However, it gets better. American Express has maintained an annualized dividend growth rate of 10.51% over the past decade, and the company recently hiked its quarterly dividend by 17%. The quarterly dividend currently stands at $0.70 per share.
A Stable Business Model
Investors who are worried about the economy slowing down may want to park some of their funds into stable picks like American Express. People trim their spending during economic slowdowns. Furthermore, fads will come and go, and some businesses will go under, but people will always use their credit and debit cards to buy goods and services.
These cards are more convenient than paper cash and offer rewards. Consumers can borrow more money than what they currently have in their checking accounts. People will continue to use credit cards during any economic cycle. For American Express investors, that means more cash flow and long-term gains.
Is AXP Stock a Buy, According to Analysts?
Most analysts feel differently from this thesis. Based on AXP stock’s average price target of $234.20, analysts only expect 1.2% upside potential. Overall, the stock comes in as a Moderate Buy based on 10 Buys, seven Holds, and two Sells assigned in the past three months.
Analysts have been mixed after the company’s earnings report. BMO Capital believes the stock can fall to $175 per share, which represents 24% downside. However, Wells Fargo offered a Buy rating and a $265 price target. This price point suggests 14.5% upside for the stock.
The Bottom Line on American Express Stock
American Express looks like a promising investment opportunity for long-term investors due to its rising profit margins, revenue growth, and reasonable valuation.
The company’s multi-year growth projections should excite investors, and American Express is hitting its benchmarks of 9% to 11% year-over-year revenue growth and EPS growth in the mid-teens.
Investors who are worried about an economic slowdown may also want to consider this stock. While consumer spending will get hit during a slower economy, people will still use their American Express cards to make purchases.
Most of the giants in the credit and debit card industry offer solid value propositions for long-term investors. However, American Express has the best yield and net income growth among the leaders in the industry. The fintech stock has more than doubled over the past five years, and it looks like it’s due for more gains.
