BofA Securities analyst Kenneth Bruce has downgraded American Express Co (AXP) from Buy to Neutral, setting a price target of $263. This move comes on the heels of a decline in the stock price, following the rerating. Bruce cites the potential for subdued billings volume growth and the stock’s current premium valuation as key factors limiting its upside potential.
While Bruce remains optimistic about American Express’s long-term execution and strategy, recent commentary from both retailers and travel companies suggests that the spending environment is proving to be challenging, even for high-end consumers. Further evidence of pressure on the U.S. consumer comes from companies like Visa Inc (V), Bruce highlighted.
Adding to the challenging landscape, several luxury brands have recently slashed their guidance for the year, citing persistent inflation and the higher rate environment as significant factors impacting U.S. consumer demand. Bruce also pointed to multiple leisure and travel brands, including Marriott, Park Hotels, and Host Hotels, who have also reduced their guidance.
Despite the current challenges, Bruce sees potential upside in credit-sensitive issuers like Synchrony Financial (SYF) and Capital One Financial Corp (COF) in a soft-landing scenario. These companies trade at a lower price-to-earnings multiple compared to American Express and are more likely to see a significant improvement in sentiment.
Given the challenging spending environment, Bruce anticipates less potential for American Express to deliver fiscal 2024 top-line growth at or above the high end of its 9%-11% revenue growth guidance range. American Express is currently trading at 17x fiscal 2025 EPS, representing a premium to its historical multiple of 14x, offering only a 4% upside to Bruce’s price target. While Bruce acknowledges the premium as justified given American Express’s faster growth algorithm and stronger credit profile compared to its peers, he expects multiple expansions to be complex in a more challenging backdrop.
As of Wednesday’s trading, AXP stock was down 3.40% at $244.54.
