Despite the looming threat of a recession, American Express (ticker: AXP) has managed to hold its ground, prompting analysts to reevaluate their bearish stance on the stock. In a recent development, Citigroup analysts upgraded Amex stock to Neutral from Sell and increased their price target from $143 to $154. As of now, Amex shares are trading at $144.
While the upgrade to Neutral may not be an unequivocal endorsement, it does reflect the remarkable strength of the US economy in the face of numerous challenges such as rising interest rates, inflation, and geopolitical tensions. The fact that households continue to spend on travel and entertainment, with a year-on-year increase of 13% at Amex, further reinforces this positive outlook. Moreover, customers are diligently making their payments on time.
Citigroup analyst Arren Cyganovich highlighted the surprising resilience of Amex’s credit quality in a note published on Wednesday. Amex’s net-charge-off rate for September stood at 1.7%, which is 30 basis points lower than pre-pandemic levels. This resiliency defied Cyganovich’s previous Sell rating, which was based on the expectation that credit deterioration would return to pre-pandemic levels, accompanied by a slowdown in purchase volume and spending growth. However, the recent fiscal-fourth-quarter earnings report showed only a “modest slowing” in spending growth, down five percentage points from the previous year. Cyganovich emphasized that despite this slowdown, overall spending levels remain healthy. Moreover, net interest income and card fees have surpassed expectations.
In light of these positive developments, Cyganovich revised his fiscal 2024 earnings estimate for Amex to $11.45 per share, up from $10.57.
This slightly more optimistic assessment of Amex coincides with Visa’s better-than-expected results, which were announced the day before. Visa’s data revealed that customers continue to demonstrate a strong desire to travel and spend abroad, with “cross-border” payments volume increasing by 21% year on year.
Investors will now eagerly await the third-quarter earnings report from Amex’s rival, Mastercard (MA), set to be released on Thursday.
Despite the positive outlook, Amex stock experienced a slight decline of 0.2% in Wednesday’s trading.