Amex has very consistent earnings, with the exception of the Costco related troubles. I suppose we don’t know where the earnings will go in the quarters to come. But long term…up.

Current price is $64.05. EPS is $5.53. P/E is at 11.38

That’s an 8.6% 1year rate of return.

So the question is: at what rate will those earnings grow? And what will my annualized rate of return be moving forward?

I could only quickly find info going back to 2006. Earnings in 2006 were 3/share and in 2015 for our purposes, earnings are 5.53 a share.  The rate of return on earnings growth is 7.03%over those 9 years.

Earnings in 2010 were 3.35/share and so the rate of return for the 5 years between 2010and 2015 would be 10.54%.

We could reason that if I bought Amex, I would be getting a 8.6% return and this rate of return would grow because per share earnings, aside from this Costco garbage, might very well grow at 7.03-10.54% per year.

Amex does have a ton of debt. 230% debt to equity.

P/E is 11.51, much lower that the 14.5 or so that was customary for the last 5 years.

Return on equity is more that 26%, and pretty consistently in the mid twenties for the past 10 years.

Since a low of about 10b in 2005 until about 21b as a present high, the rate of return was no slouch when accounting for dividends paid out. Per share this is about 7.7%.

Lets go with current book value/equity per share of 21.34. Assuming no dividends were paid, in 10 years we would have a whopping $198 per share in book value if we used a 25% return on equity…figures must be taken with a grain of salt…because dividends would be paid out…thereby reducing the equity base.

Because this figure is astronomical, it tells me that Amex must engage in share buybacks in a pretty serious way. And they must rejigger their return on equity figure in some other way…i.e. leverage.

So, assuming arguendo, that we used 198 as our projected book value per share in 2025 (and in reality it will be more like 40 something per share). I would need to buy shares at 48.94 per share to give me a 15% per year return.

Its a good business, but there is no reason to expect 15% per year growth. Pass. Buffett doesn’t buy more Amex for a reason.

Upon revision, dividend is about 1.16 per year.  Which is about 21% of the earnings per share.  So assuming we have 20% return on equity that is used for business purposes and/or reinvested, we’d be looking at a book value of 134.11.  And we’d have EPS of something like 30.82, and assuming a low p/e of 11, we’d be looking at a price of a rocking of 339.02 plus the dividend of of 9.8…we’d be looking at a huge growth rate, like 18.62.  Unfortunately, it’s forseeable that their earnings will be impacted to the tune of 20 percent because of Costco, and recent court rulings.  Let’s say we only grew the book at 16%.  That would put book at 95.55, so with a return on equity of 20, we could call their EPS would be 19.11 for a very conservative price of 210.21 plus those dividends of 9.8.  We’re looking at a great growth rate.  I’ll readjust my price point to a very conservative 55.5.  I’ll buy it up all day at that price.    We’ll see, I set staggered alerts.