American Express Seeing Strong Spending Growth, And It's Reflected In The Share Price

 

American Express (AXP) may not be the best proxy for consumer spending, given that its card lending skews to prime and super-prime customers (as well as businesses), but it is nevertheless apparent that consumer spending is already starting to recover strongly in the wake of lifted pandemic restrictions. Second quarter results were largely driven by better provision, but there was still a core beat, as well as strong underlying volume numbers.

Up almost 80% over the last year, American Express has done quite a bit better than most of its banking peers (Bank of America (BAC), Citigroup (C), and JPMorgan (JPM), though not quite as well as fellow card specialist Discover (DFS), nor heavily card-driven Capital One (COF), with the latter two more leveraged to “mass market” customers. At this point I believe mid-single-digit long-term core earnings growth and returns on tangible common equity in the mid-to-high 30%’s can support a modestly higher share price, but the stock doesn’t look notably undervalued unless you have a more bullish outlook on consumer spending and spread margins.

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American Express Seeing Strong Spending Growth, And It's Reflected In The Share Price