American Express Faces Growth Challenges, Synchrony and Capital One Emerge As Potential Alternatives: BofA Analyst

B of A Securities analyst Kenneth Bruce downgraded American Express Co AXP from Buy to Neutral with a price target of $263. The stock price slid after the rerating.

Given the potential for subdued billings volume growth and current premium valuation, Bruce sees limited incremental upside for the stock.

Also Read: American Express Q2 Earnings: CEO Raises Annual Profit And Marketing Spend Outlook After Q2 Profit Beat

While the analyst maintained a favorable view of American Express’s long-term execution and strategy, recent commentary from retailers and travel companies suggests the spending backdrop is challenging, even for the high-end consumer.

Commentary from other companies, including Visa Inc V suggested continued pressure on the U.S. consumer, Bruce flagged.

Several luxury brands slashed their guidance for the year as the persistent inflation and the higher rate environment impacted U.S. consumer demand.

Bruce also highlighted multiple leisure and travel brands, such as Marriott, Park Hotels, and Host Hotels, reducing their guidance.

In a soft-landing backdrop, Bruce predicted upside potential in credit-sensitive issuers like Synchrony Financial SYF and Capital One Financial Corp COF.

These companies trade at a lower price-to-earnings multiple relative to American Express and are likely to see more significant improvements in sentiment.

In a challenging spending backdrop, the analyst noted 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 trading at 17x fiscal 2025 EPS, a premium to the 14x historical multiple, offering only a 4% upside to Bruce’s price target. Though the analyst noted the premium as justified given a faster growth algorithm and better credit-profile versus peers, he expected multiple expansions to be complex in a more challenging backdrop.

Price Action: AXP stock traded lower by 3.40% at $244.54 at the last check on Wednesday.

Also Read:

• American Express Analysts Break Down Credit Trends, Future Revenue Surge

Image via American Express