American Express Company

New York Stock Exchange
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Bullish +65

Visa (V) vs American Express (AXP): Which is a Better Stock to Buy

Market commentary AI-generated analysis

📊 American Express (AXP) trades near 18 times past year's earnings compared to Visa's 31x, offering a valuation discount despite faster earnings growth of nearly 16%.

💰 AXP generated approximately $72 billion in revenue and retained roughly $11 billion in profit over the past year, reflecting its lending business model.

📈 AXP earnings per share rose nearly 16%, outpacing Visa's growth rate while paying a noticeably larger dividend to shareholders.

⚠️ American Express carries direct consumer credit risk as it issues cards and carries balances, unlike Visa which acts primarily as a toll road.

📅 Investors are advised to watch AXP credit provisions when the company reports on October 23 to assess if the valuation discount is justified.

🏦 Jim Cramer backs American Express (AXP) citing strong consumer spending conditions that support the stock's performance and outlook.

Bullish Signals
  • American Express (AXP) trades at a significant valuation discount of roughly 18 times earnings compared to Visa, offering an attractive entry point for investors.
  • The company demonstrated strong momentum with earnings per share rising nearly 16% over the past year, outpacing its main competitor Visa.
  • American Express pays a noticeably larger dividend than Visa, providing income support alongside capital appreciation potential.
  • The stock trades at about 16 times what analysts expect for next year, suggesting the market has not fully priced in future growth.
  • Jim Cramer supports the investment thesis for American Express while consumer spending remains robust, validating the business model.
Risk Factors
  • American Express (AXP) carries direct exposure to a weakening consumer economy as it owns the loans and issues the cards.
  • The company's lower margins compared to Visa are inherent to its lending model, where it must absorb credit losses directly.
  • Credit provisions will be a critical metric to monitor upon the October 23 report to determine if write-offs remain contained.
Full Analysis
The article compares Visa Inc. (NYSE:V) and American Express Company (NYSE:AXP), highlighting fundamental differences in their business models that drive valuation disparities. Visa operates as a toll road with minimal credit risk, generating roughly $22 billion in profit from $44 billion in revenue, resulting in a 50% margin. Conversely, American Express functions as a closed-loop lender, carrying the balance and earning a lending spread alongside fees. This model yields higher total revenue of approximately $72 billion but significantly lower margins, with about $11 billion retained after expenses. Visa trades at roughly 31 times its past year's earnings, reflecting market recognition of its durability and lack of credit risk. American Express trades near 18 times earnings, offering a valuation discount despite faster earnings growth of nearly 16% compared to Visa. The article notes that Amex pays a larger dividend and grows earnings at a quicker pace, though it carries direct exposure to consumer spending weakness which Visa avoids. Jim Cramer is cited as backing American Express while consumer spending remains strong. The author concludes that American Express is the better buy for investors willing to accept consumer credit risk in exchange for a lower valuation and higher dividend yield. Key metrics for monitoring include Amex's credit provisions when it reports on October 23, with the argument that if write-offs remain contained, the current discount becomes hard to justify. Visa is described as the superior business model but priced at a premium that may already reflect its durability.