Where will American Express stocks be in 3 years?

American Express‘ (AXP 3.57%) the stock is up nearly 60% over the past three years because S&P 500 advanced by just over 20%. The financial services giant outperformed the market as it continued to generate steady growth in a challenging macro environment. But will this daredevil stay at the top of the market for the next three years? Let’s review our business model, growth rates and valuations to decide.

How American Express differs from Visa and Mastercard

American Express controls a much smaller portion of the global card processing market than Visa and MasterCardbut operates a different business model. Visa and Mastercard only operate payment processing networks and do not issue any cards. Banks and other financial institutions issue cards co-branded with Visa and Mastercard, assume the customers’ debt and pay the two companies “passage fees” to access the payment networks.

Image source: Getty Images.

American Express is both a payment processor and a card issuer. It is one of America’s largest banks by total assets and backs its cards with its own balance sheet. That’s why it’s much harder to get an American Express card than a co-branded Visa or Mastercard card. Amex’s prioritization of high credit scores makes its cards symbols of financial success, but it also limits its own customer base. As a result, many companies — especially overseas ones — still don’t accept Amex cards.

How has American Express fared over the past three years?

American Express suffered a major slowdown in 2021 as the pandemic reduced consumer spending for most of the year. But his business quickly recovered over the next two years as those headwinds dissipated. It also steadily reduced its number of shares outstanding throughout that slow-down and choppy recovery.

Data source: American Express. EPS = earnings per share.

For 2024, it expects its revenue to grow 9% to 11% as EPS grows 19% to 23%. It attributes this growth to its continued recovery in the U.S. consumer market, which is driven by Gen Z and millennial shoppers, and its continued international expansion. Its focus on higher-income consumers likely insulated it from inflationary headwinds, and it recently spun off its fraud prevention firm Acertify to raise more cash and streamline its business.

American Express is still growing, but has maintained a low delinquency rate, with just 1.2 percent of cardmember loans more than 30 days past due at the end of the second quarter. This is lower than the average pre-pandemic delinquency rate of 1.5%.

So what will happen to American Express in the next three years?

From 2023 to 2026, analysts expect American Express’s revenue to grow at a compound annual growth rate (CAGR) of 9% as its EPS grows at a CAGR of 15%. This growth should be driven by the improvement in the macro environment. It should also continue to buy back more shares and raise its dividend, which currently has a forward yield of 1.1%.

Assuming American Express matches analysts’ estimates, grows its EPS by another 15% in 2027, and still trades at 17 times forward earnings, its stock price could easily rise more than 30% to its low of $330 over the next three years.

That means American Express shares would likely equal or outperform the S&P 500 — which has generated an average annual return of about 10% over the past 30 years. That’s probably why Warren Buffett’s Berkshire Hathaway still holds American Express stock as its second-largest position after Apple.