Valuation Analysis for The American Express Company (NYSE:AXP)
This is the first in a Series of 30 reports that are focused on identifying the valuation of the Dow Jones Industrial Average. We have already identified combined earnings growth in our Earnings Evaluation Module offered to Members of Stock Traders Daily, but this Series of reports will compliment that by evaluating each company on an individual basis. These report will be issued publicly at a rate of three per day over the next 10 days, however, the data is all already available to subscribers.
American Express Company (NYSE:AXP) earnings growth was declining steadily going into 2012, and flat-lined during 2012, but between the end of 202 and now EPS Growth on a yearly basis has been increasing steadily, and recently reached double-digits. As of Q1 2014 Yearly trailing 12 month EPS Growth (excluding 1 time events to accurately reflect growth from operations) was 10%, the highest level since the bounce back from the 2008-2009 collapse in earnings.
Arguably, the comps back then were very easy and EPS growth rates must be discounted as a result, but the recent solid growth rates come from comps that are not as easy, and that means something. The same solid growth is reflected in revenue, and that supports the effectiveness of management thus far. Analysts are expecting more of the same as well.
Furthermore, with a PEG ratio of 1.73, AXP is actually trading at valuation levels that are equivalent to Q4 2012 levels. This can be very attractive IF the company is able to maintain its growth rate.
However, there has been a slight hiccup in growth recently, and the 10% trailing growth that existed in Q1 2014 declined slightly to 9.66% in Q2 2014, but that is marginal and that growth rate is still solid enough so that if that is maintained the PE multiple could easily expand from near 16, where it is now, to near 19. In other words, consistency could warrant a 10% multiple expansion from AXP.
According to our real time trading report for AXP, which also includes all of the valuation graphs, AXP came within 1 point of longer term support recently and it has already begun to bounce back. If longer term support holds the technicals would absolutely support a move to longer term resistance, which would also be in line with the multiple expansion probability referenced above.
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