Banking, finance, and taxes

2018 Bull/Bear Outlook: American Express, Visa Look Good for Another Year

Paul Ausick

Published: January 4, 2018 11:00 am

Last Updated: January 12, 2020 4:51 am

Now that 2017 is done and 2018 has arrived, investors have to contemplate what to expect ahead. After all, this raging bull market is nearing nine years old, and it has been the strongest bull market that most investors have ever seen. The Dow Jones Industrial Average (DJIA) rose 25% and the S&P 500 rose by almost 19.5% in 2017. Wall Street is by and large calling for tax reform, earnings growth and higher GDP growth to continue the stock market gains in 2018.

24/7 Wall St. just came out with its annualized forecasting tool showing that DJIA at 26,400 and at least 2,855 on the S&P 500 are the baseline targets for 2018. For the Dow to make its targets, American Express Co. (NYSE: AXP) and Visa Inc. (NYSE: V) are going to have to do their part.

As far as what other strategists are calling for in the broader market, Credit Suisse is now targeting 3,000 and Oppenheimer is targeting 2,900 for the S&P 500 in 2018. At the end of 2017, the forward valuation for the S&P 500 Index was 18.5 to 19.0 times expected earnings per share according to two main sources.

Financial services companies like Amex and Visa are projected to be among the major beneficiaries of the recent changes to U.S. tax laws. In the near term, both will take a hit from having to re-evaluate their deferred tax assets. In the longer term, though, the rate cut from 35% to 21% will benefit both companies, as will continued rate hikes by the Federal Reserve and expected increases in consumer spending as take-home pay rises.

Visa closed 2017 as the third-best performing DJIA stock, with a share price gain of 46.1%. The stock closed the year at $114.02 a share, and the 12-month price target is $124.84, indicting a potential gain of about 9.5%. The stock’s total return last year was about 47.0%.

American Express was the Dow’s 10th best-performing stock in 2017, posting a share price gain of 34.1%. The stock closed the year at $99.31, and the 12-month consensus price target is $101.23, for a potential gain of 1.9%. For 2017 the stock’s total return was 38.9%.

Just about the only thing that could gum up the works for either of these credit card giants is a rise in net charge-offs. Amex may have a bit of an advantage here due to the higher credit quality of its card users.

24/7 Wall St.
2018 Bull/Bear Outlook: How All 30 DJIA Stocks Will Take the Market to 26,400 or Higher

Visa has a 52-week trading range of $79.36 to $115.78 and a market cap of $262 billion. Its weighting in the Dow is 3.18%, and it ranks roughly 14th among the S&P 500.

American Express has a 52-week range of $74.82 to $100.53 and a market cap of $86 billion. Its weighting in the Dow is 2.74%, and it ranks roughly 69th in the S&P 500.