Citigroup Reiterate American Express As a Top Pick (AXP)

Citigroup is out with analyst note this morning that reiterates American Express Co.’s AXP Top Picks Live status; they also reiterated the price target of $55. Citigroup analysts said that “Over the past few weeks, we have spoken to numerous industry professionals and conclude that there should only be a minor negative impact to AXP from steering/discounting. We estimate the bear-case scenario at losing 1-3% of total spend; however, this could potentially take multiple years to play out, based on the Australian example.” Analyst also noted that “AXP has contracts with all of its merchants and provides them with high-end spenders, which will mitigate steering risk. Cardholders also benefit from attractive rewards/services. Where we see some risk is at the smaller merchants that may steer away from AXP’s higher merchant discount rate.” In terms of quantifying the risk, Citi estimates that “of AXP’s total global spend only 56% falls under Durbin. Based on BLS data (& PCE), we estimate 25% of that spend pool is in “at-risk” categories such as groceries, gas, etc. that may be more susceptible to steering. Applying a conservative steering rate by merchants of 10-20%, we get 1-3% of total spend at risk (math: 56% x 25% x 10-20%).” Citigroup closed by saying, “Based on our research, we’d expect any steering headwinds to be trumped by other factors such as improved global spend, potential mkt share gains and improving credit. AXP’s charge card model is clearly well positioned. We would be buyers of the shares on any weakness around Durbin.”