AXP May Be Undervalued by Up to 27% Amid Card Acceptance Expansion

American Express (AXP) has seen its share price climb significantly over the past few years, despite pulling back in recent months. This rise raises questions about whether the current valuation is supported by the company's capital returns.

Over the past three years, American Express has delivered a total return of around 112.2%, which puts pressure on whether the company can justify such a share price change through its earnings. Recent moves to expand card acceptance to over 190 million merchant locations worldwide and deepen business banking offerings may influence how efficiently American Express reinvests capital.

The Excess Returns model examines how profit on equity compares with the cost of that equity, indicating a wide gap between what the business earns on shareholder capital and what investors require as a return. With an average return on equity of 36.37%, the model suggests an excess return of $16.62 per share.

The estimated intrinsic value of American Express is meaningfully above the current share price, which stands at around $306.33. The stable book value estimate and EPS indicate that investors are undervaluing the company.