Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

ModernGraham Valuation: American Express (AXP)

|Includes:American Express Company (AXP)

Company Profile (obtained from Google Finance): American Express Company (American Express) is a global service company. Its principal products and services are charge and credit payment card products and travel-related services offered to consumers and businesses worldwide. The Company operates in four segments: U.S. Card Services, International Card Services, Global Commercial Services (GCS) and Global Network & Merchant Services (GNMS). Corporate functions and auxiliary businesses, including the Company's Enterprise Growth Group, publishing business and other company operations, are included in Corporate & Other. American Express and its principal operating subsidiary, American Express Travel Related Services Company, Inc. (NASDAQ:TRS), are bank holding companies. During 2011, American Express completed the integration of Accertify Inc. During 2011, it acquired a controlling interest in Loyalty Partner, which is a marketing services company operating in Germany, Poland and India.

Defensive and Enterprising Investor Tests:

Defensive Investor - must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  3. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  4. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  5. Moderate PEmg ratio - PEmg is less than 20 - PASS
  6. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass all 3 of the following tests: Score = 3/3

  1. Earnings Stability - positive earnings per share for at least 5 years - PASS
  2. Dividend Record - currently pays a dividend - PASS
  3. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary:

Last Updated 10/23/2013
MG Value $115
MG Opinion Undervalued
Value Based on 3% Growth $59
Value Based on 0% Growth $34
Market Implied Growth Rate 5.74%
Net Current Asset Value (NCAV) -$122.60
PEmg 19.98
PB Ratio 4.59

Key Data:

Balance Sheet - 6/30/2013

Total Debt $52,675,000,000
Total Assets $151,933,000,000
Total Liabilities $132,899,000,000
Outstanding Shares 1,084,000,000

Earnings Per Share - Diluted

2013 (estimate) $4.89
2012 $3.89
2011 $4.09
2010 $3.35
2009 $1.54
2008 $2.48
2007 $3.39
2006 $3.01
2005 $2.56
2004 $2.74
2003 $2.31

Earnings Per Share - Modern Graham

2013 (estimate) $4.03
2012 $3.43
2011 $3.12
2010 $2.68
2009 $2.42
2008 $2.86

Conclusion:

American Express should intrigue an enterprising investor, and may warrant further investigation. It appears that it may be undervalued, especially if the current growth trends continue.

What do you think? Do you agree or disagree? Will American Express continue to grow at a rate above 5%, which the market is suggesting? Find more ModernGraham valuations at ModernGraham.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: AXP