We're Boosting Our Price Target for this Holding With Striking Point in Mind

We are boosting our price target for American Express AXP shares to $345 from $330 following the company’s December quarter earnings report, comments digested from its quarterly earnings call and its stronger-than-expected 17% quarterly dividend increase.

Even though we are making that move, we are keeping our Two rating intact given there is less than 10% upside to that revised target. However, we are still interested in building the Portfolio’s exposure to Amex’s membership-driven business model and its larger dividend.

With that in mind, and following our comments in today’s video that we could see a renewed battle between President Trump and Fed Chair Powell over interest rates, we should we see AXP shares move closer to the 50-day moving average of just over $300, which would also close a gap in the chart. That would be an ideal striking point for us to pick up more shares.

We will also be watching consumer spending levels, especially after today’s Flash January PMI showed an accelerating employment market. Should consumer spending be stronger than expected, it would be a reason for us to once again revisit our AXP price target.

On Amex’s earnings call, the management team shared its plans to refresh 35 to 50 card products this year. Typically, those refresh efforts tend to drive card fee growth as either existing members trade up to capture larger rewards and benefits or as new members join. In 2024, Amex added 13 million new cards with 70% of those acquired on fee-paying products as it refreshed part of its product. As its refresh efforts continue, potentially including the Platinum card, we should see continued card fee growth ahead. Management targets mid-high teens card fee growth year over year.

Also on the earnings call, management shared that following a 16% increase in marketing expenses last year to $6 billion, it sees a more modest increase in 2025 marketing spend. It also sees overall operating expenses growing low-single digits year over year. Paired with continued top-line growth from a combination of member spending growth as well as continued growth in net card fees, Amex should deliver some nice margin growth as well.

A few thoughts on member spending growth:

Amex continues to grow its merchant exposure across the globe and currently covers 80% across its top 12 international countries. Coverage in travel and entertainment categories is well above 80%, which positions Amex very well given the comments we’ve heard recently from Delta Air Lines DAL, United Airlines UAL and American Airlines AAL. As that merchant base and membership continues to expand, Amex has the opportunity to grow its network volumes.

One interesting stat Amex management shared during the call was that the company has an average of 6% spend share across its top five countries, which suggests ample room for spending share gains as it refreshes product and expands its rewards.

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At the time of publication, TheStreet Pro Portfolio was long AXP.