American Express’ stock (NYSE: AXP) has gained 3% YTD, as compared to the 8% rise in the S&P500 over the same period. Further, it is currently trading at $153 per share, which is 16% below its fair value of $182 – Trefis’ estimate for American Express’ valuation. The credit card giant posted mixed results in the first quarter of 2023, with revenues beating the mark but earnings missing expectations. It reported total revenues of $14.28 billion – up 22% y-o-y, driven by an 18% growth in the noninterest revenues and a 36% jump in the net interest income. The noninterest revenues benefited from growth in billed business, premium cards portfolio, and foreign exchange-related income. Similarly, the net interest income was up due to a higher outstanding loan balance and an improvement in the interest rates. That said, the provision for credit losses witnessed an unfavorable build-up from -$33 million to $1.06 billion in the quarter. This led to a 13% y-o-y drop in the net income to $1.8 billion.
The company’s revenues grew 25% y-o-y to $52.86 billion in 2022. It was driven by a 24% growth in noninterest revenues and a 28% rise in net interest income. The noninterest income was driven by a 25% growth in discount revenues, a 17% improvement in net card fees, and a 36% jump in the service fees & other revenues. Similarly, the net interest income mainly benefited from the recovery in the interest rates, as compared to the previous year. Notably, the Federal Reserve increased the benchmark interest rates seven times in 2022. On the flip side, the provisions figure increased from -$1.4 billion to $2.2 billion in the year. Altogether, the net income decreased by 7% y-o-y to $7.5 billion.
Moving forward, we expect the growth momentum to continue in Q2 2023. Overall, American Express’ revenues are forecast to touch $60.5 billion in FY2023. Additionally, AXP’s adjusted net income is likely to remain around $7.9 billion. This coupled with an annual GAAP EPS of $11.08 and a P/E multiple of just above 16x will lead to a valuation of $182.
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