Shares of integrated payments company American Express (AXP -0.62%) jumped on Friday following its fourth-quarter earnings report. In total, the stock rose about 7%. Given the report's strength, it's unsurprising to see shares rising sharply. The update and earnings call for the quarter included promising metrics and upbeat commentary from management about the future.
Here are five things likely behind investors' bullishness for American Express shares.
1. Strong top-line momentum
With a bull market underway despite an uneven macroeconomic environment in which some sectors are doing well and others are showing some signs of softness, it's increasingly challenging to find resilient and highly profitable businesses still growing revenue at double-digit rates that also have attractively priced shares.
American Express, however, makes the cut.
The lucrative integrated payments company, which specializes in a membership-based model with high annual credit card fees and compelling member perks, saw revenue increase 14% year over year in 2023 -- and that's on top of 25% growth in 2022.
We'll get to valuation in the final section of this article.
2. Impressive earnings momentum
Even better than American Express's top-line strength is its earnings-per-share (EPS) momentum. Even though the company is guiding for slightly slower top-line growth of between 9% and 11% in 2024, management expects outsize growth in EPS. The midpoint of the company's EPS guidance range calls for a 15% year-over-year increase in the key metric this year.
Helping explain why the stock jumped on Friday, the company's guidance for 2024 EPS of between $12.65 and $13.15 was meaningfully ahead of analysts' average forecast for full-year EPS of $12.41.
What's particularly impressive is management's long-term aspiration for earnings. Without specifying a particular period, management regularly tells investors it believes it can average annualized EPS growth in the mid-teens for the foreseeable future.
3. Low delinquency rates
Investors reading American Express's fourth-quarter update might notice that its delinquency rates ticked up from Q3. But what's key for investors to understand is that delinquency rates are still lower than pre-pandemic levels.
In Q4, its delinquency rate was 2%; it was 2.2% just before the pandemic. These rates are also good compared to American Express's peers, highlighting the value of the company's premium card base. Also worth noting, American Express's management pointed out in its earnings call that the sequential increase in its competitors' delinquency rates was greater in magnitude than what it saw from its cardmembers.
4. A double-digit dividend increase
With such strong earnings momentum, the company's board approved a substantial dividend increase. In its fourth-quarter update on Friday morning, American Express said it plans to increase its quarterly dividend by 17% to $0.70. This will bring its total annualized dividend payments to $2.80, giving the stock a dividend yield of about 1.4%.
With a payout ratio of just 21%, this dividend will likely continue growing nicely over the long haul.
5. An attractive valuation
Tying it all together, one of the best things about American Express stock is its conservative valuation. With EPS likely to grow at an annualized average rate in the mid-teens for the foreseeable future and the stock trading at just 18 times earnings, it's easy to see why there's been a strong appetite for the stock recently. Additionally, the stock's dividend helps offset some of the pain of volatility by providing investors with cash payments every quarter.
