Shares of the three major credit card companies, American Express Company (NYSE:AXP), Mastercard Incorporated (NYSE:MA) and Visa Inc. (NYSE:V), have all had a nice run since business-friendly Donald Trump was elected President. American Express stock, however, has been the clear bronze medalist, and has scarcely budged for months.
But by traditional measures, it’s also clearly the best value of the three.
American Express Stock: Cheap or Unwanted?
American Express stock currently trades at less than 12 times forward earnings estimates, or roughly half the valuations of Visa (forward P/E: 23.4) and Mastercard (forward P/E: 25.3). However, American Express is expected to grow earnings per share by more than 21% this year and by another 11% in 2019.
Both numbers trail the projected bottom-line growth in Visa and Mastercard the next two years.
Meanwhile, American Express stock has been stuck in neutral for five months, topping out at $101 and bottoming at $88, but staying in the $92-$93 range in the aggregate. During that time, MA stock is up more than 22%, while V stock has jumped 13%. So, while AXP may look like the best deal among the credit-card giants, it’s a deal because no one has wanted to touch it for months.
The reasons? For starters, EPS slipped by nearly 50% last year, in part because Trump’s corporate-tax cuts actually hurt the company. American Express had to swallow a $2.4 billion charge last year due to write downs in deferred tax assets.
Also, while sales improved in 2017 (by 4%), top-line growth trailed Visa’s (+21%) and Mastercard (+16%) by a wide margin. The latter two have managed to expand revenues every year for the last decade.
American Express failed to grow sales in 2016 or 2015. That kind of disparity becomes glaring after a few years, and AXP became known as the slow-growth (or no-growth) credit-card giant.
That narrative is a big part of why MA and V have been rising for years without much interruption, while American Express stock fell roughly 45% in 2015 and early 2016. It took the stock nearly two years to completely dig out of that hole. Since it has, AXP has stalled.
And perhaps there’s something to that: American Express has been stuck in neutral for so long as a company, with last year’s sales slightly less than they were in 2014 despite the year-over-year growth, that AXP stock cannot possibly break any higher no matter how low the valuation.
MA, V Better Buys than AXP
Add in the fact that American Express is accepted 1.3 million fewer locations in the U.S. than Visa and Mastercard, and it’s not just narrative. American Express is a distant third fiddle to those two powerhouses. Until that changes, American Express stock will also be something of an afterthought to investors who want a piece of the global payments industry.
Long story short, AXP stock may have squeezed every last drop out of its 2016-2017 rally and is now in a holding pattern until either sales and earnings pick up or one of its larger rivals slips. And that’s why, V and MA are better buys even at heightened valuations.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
