On Monday, Deutsche Bank (ETR:DBKGn) updated its outlook on American Express (NYSE:AXP), raising the price target to $260 from the previous $240, while retaining a Buy rating on the stock. The adjustment reflects the analyst's view on the company's first-quarter performance and future revenue growth prospects.
American Express delivered a first-quarter earnings beat, attributed to lower-than-anticipated operating expenses and provisions. Revenue was reported to be consistent with consensus estimates, hitting the higher end of the company's 9%-11% guidance range. Despite these results aligning with expectations, American Express shares experienced a notable increase of 6.23% in their value, contrasting with a 0.88% decline in the S&P 500 on the same day.
The analyst acknowledged the potential near-term risks to revenue, including the upcoming changes to late fee regulations and a potential slowdown in consumer spending. However, positive indicators were highlighted, such as the growth in new account sign-ups, which are expected to contribute to a steady revenue increase of around 10% going forward. This anticipated growth led to an upward revision of the earnings per share (EPS) estimate to $15.25 from $14.88.
The new price target is also influenced by a change in the target earnings multiple, from 16x to 17x, to reflect the anticipated durability of revenue growth that surpasses performance seen over the past 17 years. The revised price target represents a 13% upside from current levels.
The analyst notes that while the rating remains a Buy, any further increase in the stock's value may rely on positive revisions to earnings estimates, barring a significant market re-rating. The report also mentions risks to the updated price target, which include a potential slowdown in revenue, credit quality issues, and intensified competition among credit card issuers.
InvestingPro Insights
Following Deutsche Bank's optimistic revision of American Express's price target, current InvestingPro data and tips offer additional context for investors considering the stock. American Express is trading at a low P/E ratio of 19.03 relative to its near-term earnings growth, which may suggest that the stock is undervalued given its growth potential. This aligns with the analyst's view of the company's robust earnings performance and future revenue prospects.
InvestingPro data also highlights that American Express has maintained a healthy revenue growth rate, with the last twelve months as of Q1 2024 showing a 9.33% increase, and a quarterly revenue growth of 9.95% for Q1 2024. This steady growth is a testament to the company's strong market position, as emphasized by one of the InvestingPro Tips that notes American Express as a prominent player in the Consumer Finance industry. Moreover, the company has shown resilience and commitment to shareholders by maintaining dividend payments for 54 consecutive years, with a recent dividend growth of 16.67%.
For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available for American Express at Investing.com. These tips delve deeper into the company's financial health, market performance, and analyst predictions. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a total of 11 exclusive InvestingPro Tips that could further inform investment decisions.
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