American Express’ (AXP) stock performance this year has been underwhelming but relatively steady, as the premium credit card company has mirrored the broader market. With consumer spending showing some resilience in everyday purchases and travel trends picking up (especially domestic travel), the company looks well-positioned to hold its ground despite macro headwinds.

Heading into its Q2 earnings, set to be released on July 18th before the opening bell, I still see the stock trading at fair—not cheap—valuations. But with top and bottom-line estimates ticking higher and management sticking to its full-year guidance, there’s a case to be made that the market might be underestimating Amex’s staying power.

I would argue the stock deserves a Buy rating ahead of earnings day. A lot of my optimism comes from Amex’s profile as a steady compounder with defensive traits, and I think Q2 results could be the catalyst that closes the gap between rising expectations and muted multiples.

First of all, the main characteristic of American Express is that its financial products aren’t designed to serve everyone. On the contrary, the company’s strategy focuses on targeting the wealthiest segment of the population, carefully selecting its customers, charging upfront, and bringing them into a premium loyalty ecosystem with differentiated services—rather than just offering a transactional relationship like flexible credit players including SoFi Technologies (SOFI) or zero-fee lenders like Affirm (AFRM).

In addition, within the credit card market, Amex stands apart from bigger players like Visa (V) and Mastercard (MA) by earning money not only from transaction fees but also from interest and net card and services fees. In contrast, Visa and Mastercard mainly make money from transaction volume alone.

Notably, given that Amex has a highly loyal customer base, backed by strong retention rates and high purchasing power, its credit quality is among the best in the industry, with only 23.5% of its revenues tied directly to credit quality. In other words, interest charges or late fees aren’t a significant risk for Amex, and the chance of large defaults is much lower, which means more stable profits and a business model that’s far more resilient to ups and downs in consumer spending cycles.

This explains why, during the last Q1 earnings call, analysts’ primary concern was whether Amex could maintain its strong credit performance and consumer spending trends in a potentially tighter monetary environment. Still, the American Express management team kept its full-year 2025 guidance unchanged, expecting revenue growth of 8% to 10% and EPS of $15 to $15.50, which, at the midpoint, implies a solid annual increase of about 14%. It’s also worth noting that these projections already bake in a peak unemployment rate of 5.7%.

To me, keeping this guidance steady highlights how resilient Amex’s business fundamentals really are—and why investors can feel confident relying on this model even during tougher macro periods.

There’s still a sense that the market underestimates Amex’s staying power when facing broader economic headwinds. Based on how the stock has performed this year, AXP has pretty much traded in line with the broader market. However, the stock slid down to lows around $225 in April during the peak of the tariff scare and has since rebounded slowly, basically moving at the same pace as the S&P 500 (SPX). In theory, given its defensive profile, it should be less correlated and hold up better in uncertain times.

If we look at the last six months, the market was projecting a 5-year revenue CAGR for AXP of around 6.5% and an EPS CAGR of about 8%.

Today, those estimates have improved to roughly 7.2% for revenue and 9.2% for EPS. So, projections have clearly ticked higher, but there hasn’t been any meaningful expansion in the valuation multiples. For instance, year-to-date, Amex’s average forward PEG ratio has been around 2.2, peaking near 2.5 in February and again in July, and now sitting at about 2.4—basically flat versus six months ago. Similarly, AXP still trades at about 2.9x sales, which is pretty much where it was back then, and roughly in line with the sector average—although I would argue Amex deserves a premium.

So, in a way, there’s a gap here: expectations for the top and bottom line have improved, but the multiple hasn’t really expanded. To me, that suggests the market is still in “wait and see” mode, which could leave room for a rerating if Amex keeps delivering solid results.

With American Express’s earnings day coming up, to meet market expectations, the company will need to deliver an EPS of $3.86—an annual increase of 10.5%—and revenues above $17.7 billion, which would be growth of 8.3% year over year. But more important than just hitting top-line estimates, I think billed business trends could be the real anchor for stronger optimism.

Since discount revenue (merchant discount fees) accounts for more than half of Amex’s total revenue, growth in the two main segments—Goods & Services (everyday shopping, luxury, general retail) and Travel & Entertainment (T&E)—should directly lift discount revenue.

Looking at the data, U.S. retail sales from April to June remained resilient, with consumption holding up well despite still relatively high interest rates. Big-ticket retail categories like luxury and electronics might be a bit flat, but everyday Goods & Services purchases are steady. So, there’s a solid chance G&S growth could come in at or above the 7% year-over-year growth reported last quarter.

On the travel side, checkpoint numbers have been healthy, signaling a pickup in domestic travel compared to two years ago, and data from online travel agencies show solid hotel occupancy. The only potential downside is high-ticket international travel, which could face headwinds from exchange rates and tariffs, but domestic and regional travel seem likely to compensate. Management said T&E is currently somewhat pressured but expects a gradual recovery this summer, mainly driven by leisure travel.

All in all, I expect billed business to grow by mid-single digits for the year, roughly in line with recent quarters. This should at least reinforce the expectation that G&S and T&E combined will keep discount revenue on solid footing.

Right now, there are more skeptics than optimists on AXP. Out of 19 analysts covering the stock in the past three months, eight are bullish, ten are neutral, and only one is bearish. AXP’s average stock price target is $305.82, which suggests a potential downside of about 5.7% from the current share price.

I believe the odds are in favor of American Express heading into its Q2 earnings, mainly because it’s unlikely consumer spending will stay as weak—or worsen—as it was in past quarters. Valuations don’t look cheap, but for good reason: the market recognizes Amex’s resilient business model and sees a low chance of underperformance.

With management maintaining annual guidance, I still see a disconnect between the stock’s valuation and evolving expectations. This keeps me leaning Bullish, anticipating potential upside after Q2 if the company follows through on its optimistic outlook.

Disclaimer & DisclosureReport an Issue