Why This American Express Analyst Is Turning Bullish As Rising Debt Expected To Hurt Consumer Cashflows

American Express Company AXP Wednesday announced plans to expand its partnership with consumer credit bureau Nova Credit, taking the company’s stock briefly higher as markets opened.

American Express’s high-quality loan book, solid revenue growth and moderating expenses are driving its strong operating leverage, according to Morgan Stanley.

The American Express Analyst: Betsy Graseck upgraded the rating on American Express from Equal-Weight to Overweight, while raising the price target to $186.

The American Express Thesis: Consumer finance companies could witness growing losses as rising debt loads hurt consumer cashflows, Graseck said in the upgrade note.

She named American Express as the top pick in the consumer finance segment.

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“AXP has a lower risk credit skew with higher FICO card members (5% subprime vs. peer median of ~20%), and we see credit losses hitting pre-COVID levels only by 2024 while all other card peers will overshoot on deterioration,” the analyst wrote.

She expects the company’s revenue growth to be sustainable, “up 15%+ in 2023, bolstered by a recovery in large corporate T&E, double-digit growth in both card fees and loans, a weaker USD, and AXP's higher income customer base spending right through inflation.”

AXP Price Action: Shares of American Express were trading slightly higher by 0.09% to $178.93 at the time of publication Wednesday.

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