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
| Year | FCF (billions) | PV(billions) |
| 2025 | 12 | 10.71 |
| 2026 | 13.2 | 10.52 |
| 2027 | 14.5 | 10.32 |
| 2028 | 15.9 | 10.10 |
| 2029 | 17.5 | 9.93 |
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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4 Comments on “American Express (AXP): Our Calculation of Intrinsic Value”
DCF analysis is too subject to individuals “range” of variables. There are other less known, less sophisticated ways of calcuating ranges of value for stocks.
Totally agree — DCFs can vary widely based on assumptions, so I use them more as a framework than a final answer.
BTW – How can you have two stocks with relatively same valuation, but much different stocks prices? Likewise, you can have stocks with much different valuations and same stock prices – This is why I don’t trust DCF valuation. Can someone answer my two questions for me? Thank you in advance – JB
Great questions, JB. Stock price alone doesn’t reflect valuation — it’s the price per share, not the value of the whole business. Two companies can have the same stock price but vastly different share counts, market caps, or fundamentals. That’s why we focus on metrics like market cap, earnings, and cash flow — not just the share price.