TL;DR
American Express (AXP:NYSE) continues to demonstrate the appeal of its membership model. Card spending is growing, customers are paying higher membership fees, and credit performance remains controlled.
The harder question is how much of that growth will translate into sustainable earnings. Premium benefits cost money, and this quarter’s profit figures include several moving parts: a disposal gain, restructuring costs, increased legal reserves, reserve releases and tax benefits.
For value investors, the business remains attractive. The valuation offers less room for error. Our scenarios produce a probability-weighted fair value of approximately $306 per share, compared with the October 23 closing price of $313.22.
Quarter Recap
American Express reported its third-quarter results on October 23, 2026.
- Revenue net of interest expense: $20.06 billion, up 9%.
- Billed business: $454 billion, up 8%.
- Net income: $3.71 billion, up 28%.
- Reported diluted EPS: $5.42, up 31%.
- Adjusted diluted EPS: $4.68, up 13%.
The gap between reported and adjusted earnings matters. American Express recognised a $982 million pretax gain from selling its investment in Global Business Travel Group and a $336 million restructuring charge. Its adjusted results exclude both items.
Management’s updated full-year outlook calls for adjusted EPS of $17.60–$17.90, alongside approximately 10% revenue growth.
Key Highlights
Membership revenue is growing faster than spending
Net card fees increased 16%, compared with 8% growth in billed business. Average annualised fee per card rose from $119 to $136. These figures support the importance of premium membership to the business model.
Our interpretation is that American Express is increasing the revenue generated by its customer relationships. Whether that creates proportionate shareholder value depends on the cost of delivering those relationships.
The benefits supporting the franchise are becoming more expensive
Card-member rewards expense increased 10%, while card-member services expense rose 36%.
Higher fees therefore cannot be assessed in isolation. The key test is the profit remaining after rewards, travel services and other membership benefits.
Credit remains controlled, with an accounting qualification
The disclosed principal-only net write-off rate improved to 1.8%, from 1.9%. However, lower credit provisions also reflected a $235 million card-reserve release, versus a $109 million build a year earlier. The company primarily attributed the quarterly release to changes in expected-loss models.
We would avoid assuming that reserve releases provide a recurring source of earnings growth.
Capital returns continue
American Express ended the quarter with a 10.9% CET1 capital ratio and returned $2.24 billion through dividends and repurchases.
This supports the shareholder-return case, although the value created by repurchases depends on the price paid.
The market questioned the earnings improvement
AXP declined from $325.17 to $313.22 on earnings day, a fall of 3.68%.
Our interpretation is that investors could reasonably distinguish between the large reported EPS increase and the smaller improvement in recurring earnings expectations. The new adjusted guidance raises the previous outlook’s lower bound while leaving its upper bound unchanged.
SWOT Analysis
American Express’s strengths centre on premium customer relationships and capital generation. Its challenges lie in maintaining those relationships profitably through changing credit and competitive conditions.
The estimated impacts below are illustrative changes in intrinsic value relative to our $310 base case. They are model sensitivities, not forecasts of immediate stock movements, and should not be added together.
Strengths
- Premium membership economics. Strong fee growth supports the case for durable customer relationships. If this sustains annual EPS growth of 9–10%, versus our 8% base assumption, estimated value increases approximately 5–9%.
- Capacity to return capital. Continued, sensibly priced repurchases could support per-share earnings. A sustained EPS path 3–6% above our base assumptions increases estimated value by 3–6%.
Weaknesses
- The franchise requires continuing investment. Rising benefit costs can absorb higher membership revenue. If annual EPS growth settles at 6–7%, estimated value falls approximately 4–9%.
- Sustainable earnings require judgment. Taxes, reserves and legal expenses complicate the interpretation of adjusted EPS. A persistent 5–10% reduction in the projected earnings path lowers estimated value by 5–10%. The quarter included a $400 million increase in legal reserves.
Opportunities
- Better profit conversion. If fee growth continues while benefit-cost growth moderates, annual EPS growth of 10–12% would increase estimated value by approximately 9–19%, holding the terminal multiple unchanged.
- Efficiency improvements. Successful restructuring could improve profitability without weakening customer service. A sustainable 3–6% improvement in the earnings path raises estimated value by 3–6%.
Threats
- Spending and credit could weaken together. A persistent 15–25% reduction in the earnings path lowers estimated value by 15–25%, before allowing for a lower valuation multiple.
- Competition and regulatory pressure could reduce the valuation premium. The company identifies risks involving merchant pricing, steering and regulation. A terminal P/E of 14–16×, versus 18× in our base case, reduces estimated value approximately 10–21%.
Valuation Scenarios
Our valuation uses projected dividends and an estimated sale value after five years, discounted to present value.
The central earnings reference is $17.75 per share, the midpoint of management’s adjusted FY2026 guidance. We use a 10% required annual return and assume dividends equal 22% of projected EPS.
Growth rates include the assumed effect of repurchases. Buybacks are not counted again as a separate cash return. All growth rates, multiples and probabilities below are our assumptions.
Bear case: $176 per share — 25% probability
- Starting sustainable EPS of $16.00.
- Annual EPS growth of 3%.
- Year-five EPS of approximately $18.55.
- Terminal P/E of 14×.
- Discounted dividends of $14.51, plus discounted terminal value of $161.24.
- Estimated downside from $313.22: approximately 44%.
This scenario assumes lasting pressure on profitability and a lower valuation premium.
Base case: $310 per share — 50% probability
- Starting EPS of $17.75.
- Annual EPS growth of 8%.
- Year-five EPS of approximately $26.08.
- Terminal P/E of 18×.
- Discounted dividends of $18.49, plus discounted terminal value of $291.49.
- Estimated value approximately 1% below $313.22.
This assumes healthy membership economics, controlled credit losses and modest operating improvement.
Bull case: $429 per share — 25% probability
- Starting EPS of $17.75.
- Annual EPS growth of 12%.
- Year-five EPS of approximately $31.28.
- Terminal P/E of 21×.
- Discounted dividends of $20.62, plus discounted terminal value of $407.89.
- Estimated upside from $313.22: approximately 37%.
This requires stronger profit conversion, successful efficiency initiatives and continued customer engagement.
Probability-weighted fair value: approximately $306 per share.
At $313.22, the estimated margin of safety is −2.3%, calculated as one minus price divided by fair value.
The estimate is sensitive to assumptions. Changing the required return from 10% to 9% raises weighted value to approximately $320; increasing it to 11% lowers value to approximately $293. Roughly 94% of base-case value comes from the terminal value, making future earnings and the eventual valuation multiple particularly important.
Verdict
American Express’s membership model continues to demonstrate commercial strength. The central investment question is how efficiently that strength converts into lasting earnings after benefits, credit costs and operating expenses.
Our assessment is moderate business risk and limited valuation protection at the current price.
For a new value-investor purchase, the shares belong on the watchlist. A 20–25% discount to our estimated fair value would imply an illustrative entry range of approximately $230–$245, assuming the underlying outlook remains intact.
That range is a valuation threshold, not a prediction that the stock will reach it. Future evidence could also justify revising fair value upward or downward.
Call to Action
What would give you greater confidence in American Express’s next stage of growth: stronger membership retention, slower benefit-cost growth, or earnings growth supported less by reserve and tax movements?
Share your view, and follow SWOTstock for future earnings reviews.
Disclaimer
This article is for educational and informational purposes and does not constitute personalised investment advice. Valuations reflect assumptions and may change materially. Scenario probabilities and SWOT impact ranges are analytical judgments, not statistically established forecasts. The price benchmark is the October 23, 2026 closing price.
