Warren Buffett, the sage of Omaha, is praised for his investment prowess. His holding company, Berkshire Hathaway (BRK.B), epitomizes a strategy based on spotting undervalued companies worth holding long term. This blueprint has become a beacon for young investors seeking inspiration.
Within Buffett’s hallowed equity portfolio rests American Express Company (AXP), affectionately known as AmEx, a stalwart of the global financial landscape. Constituting 8.8% of Berkshire’s holdings, AmEx stands proudly behind behemoths like Apple (AAPL) and Bank of America (BAC), and ahead of the venerable Coca-Cola (KO).
Over the last decade, AXP has delivered a robust 136% return, with AmEx shares surging by 15.3% year-to-date, eclipsing the S&P 500 Index’s modest gain of 7.4%. But is AmEx still a golden goose for investors to flock to now?
American Express Has a Unique Business Model
Established in 1850, American Express boasts a storied past as a global financial services provider. Adapting to the ebbs and flows of the fiscal realm, AmEx has cultivated a staunch brand identity. This has attracted a mosaic of patrons, from affluent individuals to thriving enterprises. Renowned for its exclusive card offerings such as the iconic Green, Gold, and Platinum cards, AmEx has fostered a loyal clientele seeking not just financial transactions, but an unparalleled experience. This allegiance has bolstered the company’s fundamentals resolutely.
AmEx’s Growth Plan Proved to Be A Success
In its latest reported quarter, total revenue (net of interest expense) at AmEx catapulted by 11% year-over-year to $15.8 billion. Diluted earnings per share (EPS) spiked by 27% to $2.62. For the entire year, revenue and earnings leaped by 14% each, as AmEx embraced 12.2 million new proprietary card members.
AmEx unveiled a growth strategy in January 2022 that seems to be reaping rewards. Since its inception, this strategy has catalyzed a more than 40% increase in AmEx’s revenue. Management attributes this success to the company’s premium clienteles and the robustness of its business blueprint.
Moreover, AmEx’s business fabric hinges on a closed-loop network. Essentially, aside from merely issuing cards, AmEx also orchestrates the payments. This design affords AmEx direct interactions with cardholders, allowing for a savvy analysis of spending habits and the provision of tailored services.
AmEx Hikes Its Dividend
AmEx, a dividend-paying entity sporting a 1.12% yield slightly below the sector average of 3.1%, showcases a forward payout ratio of 16.2%. This indicates that its dividend disbursements are sustainable and poised for further expansion.
During the last quarter, the company declared a hefty 17% uptick in quarterly dividends, to $0.70 per share, payable in the first quarter of 2024. Exiting the quarter with $47 billion in cash and cash equivalents, AmEx bears a slightly elevated debt-to-equity ratio of 1.71. Nevertheless, its robust interest coverage ratio of 6.3 assures that AXP’s earnings capably meet debt interest obligations.
Despite the soft landscape for spending in 2023, courtesy of burgeoning interest rates, AmEx’s devotees globally are anticipated to fortify its performance.
Looking forward, management envisages a revenue surge of 9% to 11% this year, with earnings poised to elevate by 13% to 17% in fiscal 2024. Analysts echo this sentiment, predicting revenue and earnings ascents of 9% and 13%, respectively, for 2024.
What Do Analysts Say About AXP Stock?
In aggregate, analysts tout American Express stock as a “moderate buy.” Among the 25 analysts scrutinizing the stock, 11 champion it as a “strong buy,” two opt for a “moderate buy,” 10 advocate a “hold,” and two deem it a “strong sell.” AXP has outpaced the Street’s average target price of $203.20; however, the lofty target of $240 underscores a potential 11.6% surge from present levels.
The Bottom Line on American Express Stock
Amidst the macroeconomic throes, American Express has stood its ground with a tenacious business acumen, orchestrating revenue and earnings expansions. AmEx perseveres in its long-range ambition, striving for yearly revenue hikes of 10% or more, while holding firm on mid-teen EPS growth.
Bolstered by a sturdy foundation, a distinctive business ethos, a sturdy brand aura, and an agile capacity for adaptation and innovation, AmEx seems poised for a prolonged sojourn. Assertively, American Express emerges as a sagacious long-haul investment, justly earning its place in Buffett’s coveted portfolio.
On the date of publication, Sushree Mohanty did not hold (directly or indirectly) any positions in the securities discussed in this article. All information and data in this article are solely for informational purposes.
The expressed viewpoints and opinions herein reflect the author’s sentiments and do not necessarily mirror those of Nasdaq, Inc.
