American Express (AXP) exhibits robust financials, with a TTM ROE of 31.00% and ROTA of 3.73%, prompting a detailed valuation analysis.
In a dynamic financial landscape, American Express (AXP) remains a cornerstone of the payment services industry, navigating economic shifts with resilience. As investors seek to understand its intrinsic value, a comprehensive valuation using the Merged Master Model: Intrinsic Value Calculator for Stocks provides critical insights. This analysis evaluates AXP both as a Financial Services company and as a non-Financial Services entity, employing the Buffett-Inspired and McGrew Valuation Methods for the former, and the Buffett and McGrew Valuation Methods for the latter. With a last closing price of $317.19, we explore AXP’s financial health, including its trailing 12-month (TTM) Return on Equity (ROE) of 31.00% and Return on Tangible Assets (ROTA) of 3.73%, to assess its investment potential as of June 29, 2025.
Financial Performance: ROE and ROTA
AXP’s TTM ROE stands at an impressive 31.00%, reflecting its ability to generate substantial returns on shareholders’ equity. This figure is derived by dividing the TTM net income of $10.276 billion by the average shareholders’ equity of $33.151 billion, calculated using equity figures from Q1 2025 ($34.370 billion) and Q1 2024 ($31.932 billion). The high ROE underscores AXP’s efficiency in utilizing investor capital, a key metric for assessing profitability in the financial sector.
The TTM ROTA is 3.73%, calculated by dividing the same net income by average total assets of $275.753 billion (based on Q1 2025 assets of $282.244 billion and Q1 2024 assets of $269.261 billion). This assumes negligible intangible assets, as the provided data does not explicitly separate them, potentially understating ROTA if intangibles are significant. While lower than ROE, the ROTA reflects AXP’s ability to generate earnings from its asset base, a critical measure for financial institutions with substantial loan and investment portfolios.
Valuation Methodology
The Merged Master Model applies two valuation approaches, tailored to whether AXP is treated as a Financial Services or non-Financial Services company. For the Financial Services classification, the Buffett-Inspired Valuation Method and McGrew Valuation Method use Distributable Earnings, while for non-Financial Services, both methods use Free Cash Flow (FCF). All calculations rely on data from AXP’s quarterly financial statements, with no assumptions beyond those necessitated by data gaps, and incorporate a 25% margin of safety to account for uncertainties.
Financial Services Valuation
Distributable Earnings Calculation: Distributable Earnings are calculated as Net Income ($10.276 billion) plus Non-Cash Charges (Depreciation and Amortization, $1.719 billion), minus Increase in Regulatory Capital Required for Growth. Due to the absence of specific regulatory capital data, this was assumed to be zero, yielding TTM Distributable Earnings of $11.995 billion. This assumption may overestimate earnings, a noted limitation.
Buffett-Inspired Valuation Method: This method projects Distributable Earnings at a constant 3% growth rate for 10 years, using an 8% discount rate and a 2.5% perpetual growth rate. Starting with $11.995 billion, earnings are projected to reach $16.120 billion by Year 10. The terminal value is $300.331 billion, discounted to $141.947 billion. Summing the present values of annual earnings and the terminal value yields an enterprise value of $235.863 billion. After subtracting adjusted net debt ($287 million, accounting for $102 million in restricted cash), the equity value is $235.863 billion. Dividing by 701 million shares results in an intrinsic value per share of $336.46. Applying a 25% margin of safety gives a price of $252.34. Compared to the closing price of $317.19, AXP is 5.73% below the intrinsic value, suggesting a “Hold” status (within 6% below to 35% above intrinsic value).
McGrew Valuation Method: With a 5-year Distributable Earnings CAGR of 15.97%, AXP is classified as a growth stock. The method starts with a 15% growth rate (capped from 15.97%), declining linearly to 6% by Year 7, and holding at 6% through Year 10. Year 10 earnings reach $28.664 billion, with a terminal value of $534.181 billion, discounted to $252.355 billion. The enterprise value is $374.466 billion, and after subtracting adjusted net debt, the equity value is $374.466 billion, yielding an intrinsic value per share of $534.18. The price with a 25% margin of safety is $400.64. The closing price is 40.61% below this intrinsic value, indicating a “Screaming Buy” status (more than 25% below intrinsic value).
Non-Financial Services Valuation
Free Cash Flow Calculation: FCF is calculated as (Net Income – Derivative Gains/Losses) – Capital Expenditure. TTM Net Income is $10.276 billion, Derivative Gains are $2.105 billion, and Capital Expenditure is $1.945 billion, resulting in an FCF of $14.326 billion. The 5-year FCF CAGR is 22.00%, classifying AXP as a growth stock.
Buffett Valuation Method: Using a 3% constant growth rate, FCF grows from $14.326 billion to $19.253 billion by Year 10. The terminal value is $358.703 billion, discounted to $169.469 billion. The enterprise value is $261.591 billion, and after subtracting net debt ($389 million, without restricted cash offset), the equity value is $261.590 billion. Dividing by 701 million shares gives an intrinsic value of $373.17, with a margin of safety price of $279.88. The closing price is 15.01% below, indicating a “Buy” status (7% to 25% below intrinsic value).
McGrew Valuation Method: Starting with a 15% growth rate, declining to 6% by Year 7, FCF reaches $34.234 billion by Year 10. The terminal value is $637.797 billion, discounted to $301.319 billion. The enterprise value is $446.271 billion, and the equity value is $446.270 billion after subtracting net debt, yielding an intrinsic value of $636.62. The margin of safety price is $477.47, and the closing price is 50.17% below, indicating a “Screaming Buy” status.
Valuation Table
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| AXP | Buffett-Inspired Valuation | $336.46 | $252.34 | $317.19 | Hold |
| AXP | McGrew Valuation (FS) | $534.18 | $400.64 | $317.19 | Screaming Buy |
| AXP | Buffett Valuation | $373.17 | $279.88 | $317.19 | Buy |
| AXP | McGrew Valuation (Non-FS) | $636.62 | $477.47 | $317.19 | Screaming Buy |
Note on Valuation Calculations: All valuations were calculated using the Merged Master Model. For Financial Services (FS) valuations, Distributable Earnings ($11.995 billion) were derived from TTM Net Income ($10.276 billion) plus Depreciation ($1.719 billion), assuming zero regulatory capital increase due to data unavailability. The Buffett-Inspired Method uses a 3% growth rate, while the McGrew Method uses a 15% initial growth rate (from 15.97% CAGR), declining to 6% by Year 7. For non-Financial Services (Non-FS), FCF ($14.326 billion) was calculated as Net Income minus Derivative Gains ($2.105 billion) plus Capital Expenditure ($1.945 billion). The Buffett Method uses a 3% growth rate, and the McGrew Method uses a 15% initial growth rate (from 22.00% CAGR). Both use an 8% discount rate and 2.5% perpetual growth rate. Net debt was $287 million (FS, adjusted for $102 million restricted cash) or $389 million (Non-FS). Data sourced from provided CSV files; limitations include missing regulatory capital and incomplete Derivative Gains/Losses data.
Analysis and Implications
The valuations reveal AXP’s attractiveness, particularly under the McGrew methods, which account for its strong growth (15.97% and 22.00% CAGRs). The non-Financial Services approach yields higher intrinsic values ($373.17 and $636.62) due to higher FCF from including derivative gains, suggesting AXP’s cash flow strength is understated in the Financial Services framework. The “Screaming Buy” ratings under both McGrew valuations indicate significant upside potential, while the Buffett methods suggest more conservative opportunities (“Hold” and “Buy”). AXP’s high ROE (31.00%) supports its profitability, though the lower ROTA (3.73%) reflects its asset-heavy business model.
Investors should consider AXP’s operational efficiency and market position in payment processing, balanced against risks like economic downturns affecting consumer spending. The assumption of zero regulatory capital growth and missing derivative data introduces uncertainty, warranting further research. Nonetheless, AXP appears undervalued, particularly for growth-focused investors, at its current price of $317.19.
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