Analysts suggest American Express stock is undervalued despite 6% drop

American Express's stock has underperformed this year, falling about 6% while major competitors like Visa and Mastercard have seen gains. As of now, the stock has lagged behind the Dow Jones Industrial Average and the S&P 500, which are both up 13%. Investors are wary about the company’s growth potential amid rising consumer spending and broader economic concerns.

Despite these challenges, analysts suggest that American Express may be an undervalued investment opportunity. Currently, only 48% of Wall Street analysts rate the stock as a buy, a stark contrast to the 93% buy ratings for both Mastercard and Visa. This discrepancy raises questions about whether the market is overlooking the financial giant's potential.

American Express recently reported its second-quarter earnings, revealing a 10% increase in revenue year over year, totaling $19.6 billion. While this figure fell slightly short of the projected $19.7 billion, earnings per share exceeded expectations, rising to $4.53 against an anticipated $4.40. The company maintained strong credit quality, with provisions for credit losses and delinquency rates showing positive trends. In response to this performance, American Express raised its revenue growth guidance for the fiscal year from 9% to 10%, although it kept its earnings guidance unchanged.

Concerns linger about rising expenses, which climbed 12% in the second quarter to $14.5 billion, surpassing revenue growth. CEO Stephen Squeri emphasized that increased spending on marketing and technology is essential to maintain customer retention and ensure long-term success. He expressed confidence in the company’s trajectory, highlighting growth opportunities among a new generation of premium customers. As American Express continues to navigate these challenges, its ability to leverage these investments may ultimately define its future growth.