American Express - Our Calculation Of Intrinsic Value
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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’re analyzing a powerhouse in global payments and financial services — American Express (AXP).
Profile
American Express (AXP) is one of the world’s most recognized financial services brands, known for its premium credit cards, charge cards, and travel-related services. With a loyal customer base, strong brand equity, and robust underwriting discipline, AmEx has carved out a defensible niche in the global consumer finance ecosystem.
DCF Analysis
Inputs
- Discount Rate: 10%
- Terminal Growth Rate: 3%
- WACC: 10%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF (billions) | PV (billions) |
|---|---|---|
| 2025 | 12.0 | 10.91 |
| 2026 | 13.0 | 10.72 |
| 2027 | 14.0 | 10.52 |
| 2028 | 15.0 | 10.23 |
| 2029 | 16.0 | 9.93 |
Total Present Value of FCFs = 52.31 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (16.0 × 1.03) / (0.10 – 0.03)
= 16.48 / 0.07
= 235.43 billion
Present Value of Terminal Value
= 235.43 / (1.10)^5
= 146.17 billion
Enterprise Value Calculation
Enterprise Value = PV of FCFs + PV of Terminal Value
= 52.31 + 146.17
= 198.48 billion
Net Debt Calculation
Net Debt = Debt – Cash
= 51.09 – 40.64
= 10.45 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt
= 198.48 – 10.45
= 188.03 billion
Per-Share DCF Value
Shares Outstanding = 0.752 billion
Per-Share DCF Value = 188.03 / 0.752 = $250.56
Conclusion
- DCF Value: $250.56
- Current Price: $311.90
- Margin of Safety: –24%
Based on this DCF valuation, American Express appears modestly overvalued. While the company generates strong free cash flow and holds a defensible brand position in the premium payments space, the current share price implies high expectations for continued growth.
With a calculated intrinsic value of $250.56 per share versus a market price of $311.90, the negative margin of safety suggests limited upside unless free cash flows significantly outperform our conservative assumptions.
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