Stock Analysis & Ideas

American Express Stock (NYSE:AXP): Too Much Negativity Already Baked In

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American Express stock has been beaten down quite severely over the past few months. Despite rising recession fears, the firm may have what it takes to improve its long-term fundamentals as times get tough.

Shares of American Express (NYSE:AXP) have been on a rocky ride of late, shedding more than 30% of its value from its nearly-$200 per-share peak. Undoubtedly, fears of recession have worked their way into the shares of credit card giants, with American Express (Amex) taking one of the bigger hits to the chin versus its big-two peers. Though American Express could take a slightly larger hit to the chin as we move into a recession year, I’d argue the damage done to the stock already bakes in too much negativity.

As Warren Buffett’s favorite credit card investment looks to steady sails through a rough year, investors should be enticed by its depressed valuation multiples.

At 14.1 times trailing earnings and 2.1 times sales, American Express stock is worlds cheaper than the likes of Mastercard (NYSE:MA) or Visa (NYSE:V). Indeed, Amex deserves to trade at a hefty discount relative to its bigger brothers. However, how much of a discount remains a million-dollar question.

Though there are no escaping coming macro headwinds, I am bullish on Amex stock. Shares are too cheap, and investors have been too quick to give up on the stock.

Why American Express Stock is Worth Betting on despite a Recession

American Express stock doesn’t get as much love as the more tech-savvy (and widely adopted) Mastercard or Visa. Indeed, far fewer merchants accept Amex than the likes of the big two. Regardless, Amex does have exposure to more affluent consumers who may be less affected by a recession-induced decline in payments. Further, these same wealthy customers may also be less affected by the scorching-hot barrage of inflation, which is likely to linger in the new year.

Further, it seems likely that the COVID-19 pandemic is going endemic. Omicron cases have fallen drastically in recent months, with new vaccine boosters that could help fuel the transition.

Such an endemic shift could bring a continued (albeit a bit lumpy) recovery in air travel. The travel industry’s recovery from COVID-19 has been swift, but a recession could take a stride out of its step. Anything worse than a mild recession could cause air travel to take a few steps back. Regardless, the worst may already be in the rear-view mirror for the industry that’s no longer as constrained by government-mandated restrictions.

Indeed, travel spending is a big needle-mover for Amex. That’s why the pandemic-fuelled crash was so detrimental, causing shares to nearly get cut in half. Though shares have climbed back a long way, questions linger as to how far a recession can drag AMX stock this time around.

I’d argue a return to the 2020 crash depths is out of the question, given recent spending momentum and the ability to spend on various experiences that were unavailable just two years ago.

Can American Express Catch Up to Its Peers?

One of the biggest knocks against American Express over its peers is the lack of merchant acceptance. Undoubtedly, a lack of acceptance is a hurdle preventing many users from signing up. In due time, I do think Amex has the tools (and perks) to beckon new users away from the big two. Arguably, Amex has room to play catch up, and it’s more than capable of doing so under the leadership of CEO Stephen Squeri.

In 2021, the fintech craze heated up to unprecedented levels. Though many fintech stocks have fallen hard from their peaks, the advancement of financial technology remains difficult to ignore. Amex is just one firm that could flex its tech muscles to gain ground on its peers.

Just over a week ago, the company announced its intention to hire 1,500 technology workers by year’s end. As most companies cut their staff, such news is nothing short of encouraging. I think it’s a testament to the firm’s ability to turn a recession (a bad thing) into an opportunity to gain ground on rivals.

With valuations contracting across the tech spectrum, Amex may also be in a position to go on an acquisition spree. Discount Amex’s tech prowess, if you will, but I think the company is adapting to the new age and at a perfect time.

Is AXP a Buy or Sell?

Turning to Wall Street, AXP stock has a Moderate Buy consensus rating based on eight Buys and nine Holds assigned in the past three months. The average American Express price target is $174.12, implying upside potential of 24.9%. Analyst price targets range from a low of $155.00 per share to a high of $210.00 per share.

Takeaway: Real Value is Hiding in American Express Stock

American Express stock is in the gutter right now, but as the company goes on a hiring spree, look for the firm to roar out of the gate once the worst of the recession fears are over. Such tech investments could induce greater merchant acceptance and consumer sign-ups over the long haul. Warren Buffett loves Amex stock for a reason. It’s an incredibly well-managed company that’s zigging while others are zagging in the face of macro turmoil.

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