American Express (AXP 6.22%) impressed investors last week, announcing solid fourth-quarter results and offering upbeat guidance for 2023. Management's rosy forecast is for double-digit percentage revenue growth this year, building on the 25% top-line growth the company achieved in 2022. In addition, management soothed investors' concerns about how the company is faring during this uncertain macroeconomic environment, noting that it wasn't seeing signs of a recession from its customer base.
Analysts were apparently impressed, too. At least nine of them have increased their 12-month price targets on the stock in the days since the company's earnings report was released. The most bullish of these analysts, Stephen Biggar at Argus Research, raised his price target on the stock from $180 to $210. His revised price target represents an upside of about 20% relative to where the stock was trading at the time of this writing.
Here's a look at American Express' business momentum, and the reasons why Biggar is so bullish.
Double-digit percentage growth
American Express wrapped up a strong 2022 with revenue increasing 17% year over year in the fourth quarter to a record $14.2 billion. That result was driven by the company's highest-ever quarterly card member spending, management said. Even better, American Express said it expected strong growth to persist. Management guided for revenue to increase by 15% to 17% in 2023.
"Our performance to date and the opportunities ahead position us well to deliver on our longer-term growth plan aspirations for double-digit annual revenue growth and mid-teens EPS growth," said American Express CEO Stephen Squeri in the earnings release.
The company also announced a 15% increase to its dividend. Its next quarterly payment will be $0.60, which gives the stock a dividend yield of about 1.4%.
The path to $210
Key to Biggar's bull case is American Express's strong network volume growth in Q4. More broadly, however, Biggar cites the company's premium customer base. American Express cardholders, in general, have higher incomes and credit scores than other major credit card companies' average customers. This means American Express may be better positioned to weather economic challenges than some of its peers. In addition, this customer base is contributing to strong growth in the meantime.
While the stock is up 17% over the last three months, the shares still look somewhat attractively valued. Not only does the company pay investors a nice dividend, but its shares trade at just 18 times earnings. This is below the S&P 500's average price-to-earnings ratio of about 20, even as management expects strong revenue growth this year.
Though shares have risen sharply recently, the stock is still down about 4% over the last 12 months. Investors who feel like they've missed their chance to buy shares of this high-quality company at a discount may want to reconsider that view. While there's no guarantee the stock will get to $210 over the next 12 months, it does look undervalued based on American Express' business momentum.
