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).
ProfileAmerican 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 PerformanceOver the past twelve months the share price is up 86.93%.
Source: Google Finance
Inputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 330.10 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 204.96 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 80.66 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 285.62billionNet DebtNet Debt = Total Debt – Total Cash = 7.18 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 278.44 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $395.52
Conclusion
Based on the DCF valuation, the stock is undervalued. The DCF value of $395.52 share is higher than the current market price of $288.51. The Margin of Safety is 27.06%.More By This Author:Knot Theory Meets Private Equity: The Takahashi-Alexander Model Explained
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