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As part of our ongoing series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, American Express (AXP).

Profile

American Express (AXP) is a globally integrated payments company, operating primarily in three segments: Global Consumer Services, Global Commercial Services, and Global Merchant & Network Services. The company generates revenue through cardmember fees, merchant discount revenue (from transactions), and interest on loans. Known for its premium customer base and strong brand loyalty, American Express focuses on high-spending individuals and businesses, differentiating itself through rewards programs and exclusive benefits.

DCF Analysis

Inputs

Discount Rate: 12%

Terminal Growth Rate: 2%

WACC: 12%

Forecasted Free Cash Flows (FCFs) in billions

Total Present Value of FCFs = 51.58 billion

Terminal Value Calculation

Using the perpetuity growth model:

Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (17.5 × 1.02) / (0.12 – 0.02)
= 178.5 billion

Present Value of Terminal Value

PV of Terminal Value = Terminal Value / (1 + WACC)^5
= 178.5 / (1.12)^5
= 101.29 billion

Enterprise Value Calculation

Enterprise Value = Present Value of FCFs + Present Value of Terminal Value
= 51.58 + 101.29
= 152.87 billion

Net Debt Calculation

Net Debt = Total Debt – Cash
= 51.09 – 40.64
= 10.45 billion

Equity Value Calculation

Equity Value = Enterprise Value – Net Debt
= 152.87 – 10.45
= 142.42 billion

Per-Share DCF Value

Shares Outstanding = 702 million

Per-Share DCF Value = Equity Value / Shares Outstanding
= 142.42 / 0.702
= 202.88

Conclusion

• DCF Value: 202.88
• Current Price: 266.41
• Margin of Safety: -31.5%

Based on the DCF valuation, American Express (AXP) appears significantly overvalued. The estimated intrinsic value of $202.88 per share is well below the current market price of $266.41, resulting in a -31.5% Margin of Safety.

This suggests that AXP is trading at a steep premium to its fundamental valuation. Investors should carefully evaluate whether the company’s future growth prospects and market positioning justify the current valuation—or if there’s limited upside at these levels.

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