American Express (NYSE:AXP) holds a notable place in Warren Buffett’s Berkshire Hathaway portfolio, making up a little over 16% of Berkshire’s holdings.
Buffett, however, hasn’t expanded his AXP holdings since 2012, when share prices and multiples were far below their present levels.
Let’s take a look at American Express today to see if Buffett’s bet from well over a decade ago is still looking like a good investment in the current market.
Amex Revenues Nearly $17 Billion Quarterly
The recently-released Q1 earnings report did nothing to disappoint long-term investors thanks to revenues rising 7% to $16.97 billion. Net income fell by 6% to $2.58 billion but diluted EPS climbed 9% to $3.64.
For the full year, management expects revenue growth in the range of 8 to 10% and EPS of $15.00 to $15.50.
American Express has been a steady-eddy on both its top and bottom lines for decades. With the exception of five quarters of contraction during the 2020-21 era, revenues have grown on a year-over-year basis in every quarter since 2018. Full-year revenues have climbed steadily as a result, up from $35.90 billion in 2014 to $74.20 billion in 2024.
One of the things that attracted Warren Buffett early on to Amex was the high profitability that still sits at 12.5% as well as the high return on capital which is currently 15.4%. Add those to the sky high return on invested capital of 34.6% and it’s no wonder why the Sage of Omaha has held the stock for so many years.
We can’t ignore though that other card companies also stun on many of these metrics, not the least of which is Visa (NYSE:V) which most recently reported a net margin of 54.3%, a return on invested capital of 33.2% and a return on equity of 50.6% over the same period.
A key twist in AMEX’s business model is that it earns interest directly from its customers, as well as from card and merchant fees.
A report recently released by the Federal Reserve Bank of New York found that US credit card balances reached $1.21 trillion at the end of December, up $45 billion from the previous quarter. With Americans carrying heavier balances on their cards, American Express stands to benefit by earning higher interest income.
There is a bit of a downside to this trend for the credit card industry as well. With rising balances, the rate of credit card delinquencies is also somewhat up. This trend, however, doesn’t seem to have come for American Express. As of February, the premier card’s delinquency rate had held flat for three consecutive months at 1.4%.
Earnings Multiple Near Buffett Line In the Sand
At the moment, AXP is trading at 17.9x earnings, 2.7x sales and 14.8x operating cash flow. The P/E has contracted somewhat since the end of last year but remains more or less in the range it has maintained over the past 3 years.
The P/S ratio, meanwhile, has been somewhat high since late 2024, though it has come down a bit so far in 2025.
Based on these metrics, American Express seems to be trading at a median valuation range right now. The slate of standing analyst price forecasts also seems to indicate this, with the average price target of $293.48 representing a gain of around 16.8% from the stock’s last closing price.
While still above the historical return of the S&P 500, this projected upside doesn’t seem to suggest that AXP is being viewed as radically undervalued.
American Express also pays a respectable dividend, though certainly not a massive one when compared to other financial companies. AXP shares currently yield 1.2% and paying $2.70 per share annually.
Where the stock could shine in terms of its dividend, however, is in its potential for future dividend growth. Right now, the dividend payout ratio is under 20%. At this level, management has a free hand to pursue significant dividend increases in the future.
AXP vs Visa vs Mastercard
Though American Express acts both as a payment network and a card issuer, it’s still much smaller in terms of transaction volume than either Visa or MasterCard.
A merger between Discover and Capital One is also in the process of clearing regulatory hurdles and is slated to become America’s largest credit card issuer and fundamentally change the competitive dynamics of the industry.
The good news for American Express is that, even as a smaller credit card provider, its brand remains pristine, another factor that attracts Buffett we expect.
The company’s upper-end cards, particularly its Gold and Centurion cards, the latter available only by invitation, have become entrenched as financial status symbols among younger consumers. American Express’s customers are also quite loyal, and the company is consistently ranked as the credit card company with the highest customer satisfaction rate.
Is American Express a Buy, Sell or Hold?
Despite not being massively undervalued, AXP is a decent buy while trading at a fair price today.
Looking forward, AXP is likely to see earnings rise both as a result of organic growth and the share buyback policy. Since 2011, the company has been gradually but consistently reducing its outstanding share count. Between buybacks and net income growth, analysts currently expect AXP’s EPS to climb at a rate of almost 15% over the next five years.
This kind of consistent compounding growth is what makes American Express a good candidate to buy now and hold for the long run. Although AXP probably won’t produce the kind of massive short-term returns investors have gotten used to in tech stocks during the AI boom, the ability to keep EPS rising at a steady rate year after year could make American Express a good long-term investment.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
