As part of a new 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 Co (AXP).
Profile
American Express is a global financial institution, operating in about 130 countries, that provides consumers and businesses charge and credit card payment products. The company also operates a highly profitable merchant payment network. Since 2018, it has operated in three segments: global consumer services, global commercial services, and global merchant and network services. In addition to payment products, the company’s commercial business offers expense management tools, consulting services, and business loans.
Recent Performance
Over the past twelve months the share price is up 42.56%.
Source: Google Finance
Inputs
- Discount Rate: 9.8%
- Terminal Growth Rate: 2%
- WACC: 9.8%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 17.8 | 16.21 |
| 2025 | 19.55 | 16.21 |
| 2026 | 21.47 | 16.21 |
| 2027 | 23.58 | 16.21 |
| 2028 | 25.89 | 16.20 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 337.26 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 211.04 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 81.03 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 292.07 billion
Net Debt
Net Debt = Total Debt – Total Cash = -4.75 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 296.82 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $418.05
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $418.05 | $233.54 | 44.14% |
Based on the DCF valuation, the stock is undervalued. The DCF value of $418.05 share is higher than the current market price of $233.54. The Margin of Safety is 44.14%.
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