American Express Company (NYSE:AXP) is winning customers before their peak earning years. Millennials and Gen Z are its fastest-growing consumer cohorts and together generate the largest share of spending on its U.S. consumer cards. The opportunity is decades of merchant fees and renewals. Competition for premium customers makes the cost of securing those relationships equally important.
American Express Company trades at 15x forward P/E, based on forecast earnings, versus 18x trailing P/E, based on past earnings. Rising spending, card fees, and repurchases underpin the earnings-growth outlook. Separately, analysts forecast adjusted EPS of $17.64 in 2026 and $20.16 in 2027. The stock looks fairly valued if growth survives higher benefit costs.
Synchrony Financial (NYSE:SYF), at 7x forward P/E, offers a closer lending comparison than a payment-only network, although its retail financing mix differs. Analysts expect approximately 11% adjusted EPS growth in 2027, versus 14% for American Express Company. Recurring card fees and durable customer relationships must justify much of that valuation premium.
Also read: 10 Best 52-Week Low Dividend Stocks to Invest In
Winning the Customer Before Peak Earning Years
For American Express Company, younger customers already matter financially. Second-quarter U.S. consumer spending rose 40% among Gen Z and 14% among Millennials. Together, they supplied 38% of spending, ahead of Gen X at 36%. In 2025, new U.S. Platinum and Gold customers averaged 33 and 29 years old, respectively.
Those ages leave room for higher spending as careers progress. Merchant fees rise with purchases, while upgrades can add annual fees without acquiring an entirely new customer. The payoff depends on turning repeat payment activity into profitable growth, with acquisition costs spread across years of retained business.
American Express Company, included in Insider Monkey’s Best Financial Stocks to Buy According to Warren Buffett, has encouraging renewal evidence. First-quarter Platinum retention remained stable after roughly one-quarter of U.S. consumer Platinum accounts had been billed the higher annual fee. Second-quarter net card fees subsequently grew 15%.
The decisive test is retention after welcome offers expire. Customers who keep paying, increase spending and adopt additional products can repay acquisition costs over time. Bonuses that attract brief relationships offer weaker economics.
Benefits Must Earn Their Place in the Wallet
American Express Company faces an industry contest over richer travel and dining benefits. Second-quarter rewards expense rose 9%, while cardholder-service costs jumped 50%. Total variable customer-engagement expenses increased 17%, outpacing revenue growth of 10%.
Some benefits have better economics: management identifies the hotel programs’ stay benefits, such as breakfast, upgrades, and experience credits, as entirely partner-funded. The $600 annual Platinum hotel statement credit is separate.
American Express Company also sees transactions from both cardholders and merchants, helping tailor offers and assess risk. Still, customer knowledge must translate into better loan performance. Principal-only write-offs on consumer and small-business balances held at a 2.0% annualized rate. A $191 million reserve release helped second-quarter profits; repeated releases cannot replace earnings from spending and fees.
Capital matters alongside retention. American Express Company returned approximately $2.9 billion through dividends and repurchases in the quarter while maintaining a 10.4% common-equity Tier 1 ratio. Second-quarter net income grew 8%, while diluted EPS rose 11% as average diluted shares fell 3%, showing that repurchases contributed to per-share growth.
Buybacks create value only when the underlying economics support them. Growing loans require funding and capital, while higher deposit costs would reduce earnings available for distributions. The banking subsidiary’s $350 million regulatory penalty adds another cash requirement. Part was reserved previously, and management maintained 2026 guidance.
The forward P/E is below 21x at year-end 2025. Heavier spending on benefits supports some discount, but the outlook includes relief: management expects variable customer-engagement expenses to represent 44%–45% of 2026 revenue, with expense growth slowing from the fourth quarter as the Platinum refresh anniversary passes. Delivering that forecast would support margins and the valuation. The discount becomes attractive only if customer revenue ultimately outgrows the costs of sustaining loyalty.
Conclusion
American Express Company is fairly valued at 15x forward P/E. Younger customers can become more valuable through sustained spending and paid renewals. Rising fees, slower benefit-cost growth, and stable credit losses must drive profits alongside the EPS benefit from buybacks. Weaker renewals or persistent cost pressure would undermine the premium.
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This article is originally published at Insider Monkey.
