Our $300 target price for American Express is derived from our discounted residual income model, which incorporates our three-year forward earnings projection, a seven-year fade period, and a steady-state terminal value at year 10. The key inputs to the model assume a 10.6% cost of equity, including a risk-free rate of 4.5%, equity risk premium of 3.5% and beta of 1.75, and also incorporates a modified long-term ROTCE estimate of 40%. We assume a perpetual growth rate of about 6%.

Key macroeconomic risk to AXP is the Fed is unable to achieve a “soft landing”, which could lead to lower billings growth and increased credit risk. While we do not expect significant losses, if credit conditions deteriorate beyond our expectations, it may impose significant headwinds to earnings and achieving our target price.

Company-Specific Positive Risks: AXP has a well-established integrated network with exposure to favorable, fast-growing segments such as premium and young consumer. If AXP is able to accelerate booking growth then we would expect enhancements to the bank’s earnings power and stock price. AXP has a strong management team and proven track record of strong performance along with higher customer satisfaction and retention.

Company-Specific Negative Risks: Excess returns have increased competition in the space, which could threaten AXP's market share if attractive rewards and promo offers from competitors draw customers away. AXP has been an outperformer on credit due to its higher income customer base but should the environment worsen and credit quality deteriorate, especially in some of the newer and fastest-growing customer segments like Millennials and Gen Z, this could raise some concerns about the credit quality of the portfolio.

If the impact on the company from any of these factors proves to be greater/less than we anticipate, it could prevent the stock from achieving our target price or could cause our target price to be materially outperformed.