On Monday, BTIG reiterated its Sell rating on American Express (NYSE:AXP), maintaining the $230.00 price target for the company's shares.
The firm's analyst pointed out that while the rationale for the negative outlook on American Express is unfolding, the process is still in the initial phase. The recommendation to continue avoiding American Express stock comes despite a decline in share price following the company's earnings report.
The analyst expressed skepticism about the widespread optimism regarding American Express's potential to achieve at least 10% year-over-year revenue growth by 2025. The December 2024 financials conference season and the fourth-quarter 2024 earnings alongside the 2025 guidance are anticipated to provide further reasons to reduce both American Express's earnings per share and valuation multiples.
With the current price-to-earnings ratio exceeding 20 times, American Express would need to significantly surpass its mid-teens year-over-year EPS guidance, aiming for a consistent mid-20% year-over-year EPS growth rate, which the analyst believes is only feasible with mid-teens year-over-year revenue growth.
However, management comments during today's third-quarter 2024 earnings call suggested that American Express may fall short of its 10% year-over-year revenue growth target once again. Furthermore, the analyst raised concerns about the company's revenue growth prospects for 2026, noting that the 10% year-over-year revenue growth goal is now being referred to as "aspirational."
In comparison to other large banks that have reported their third-quarter 2024 results, the analyst found American Express's situation particularly interesting. Similar to Ally Financial (NYSE:NYSE:ALLY), which holds a Neutral rating, it was American Express management's outlook on the state of the U.S. consumer that contributed to the decline in its stock.
The analyst acknowledged American Express management for candidly addressing concerns that are not necessarily unique to the company, as all reporting banks have shown credit card trends with rising delinquencies and reserve rates.
The expectation is that other banks will eventually also recognize the weakening spending and borrowing patterns among U.S. consumers, including the high-credit-quality clientele of American Express.
In other recent news, American Express (AXP) and UBS have been involved in significant business transactions. UBS divested its 50% stake in Swisscard to American Express, marking a significant shift in the credit card provider's ownership. This move is part of UBS's strategy to reshape its business following the acquisition of Credit Suisse (SIX:CSGN) assets.
Simultaneously, American Express reported robust financial results for the third quarter of 2024. The company's earnings per share reached $3.49, with revenues totaling $16.6 billion, indicating an 8% increase year-over-year. American Express also raised its full-year EPS guidance to between $13.75 and $14.05, reflecting a positive outlook on the company's financial health.
These are recent developments that underscore the dynamic changes within the financial industry. The transactions between UBS and American Express and the strong financial performance of American Express are indicative of the ongoing shifts and adaptations within the sector.
InvestingPro Insights
Adding to BTIG's analysis, recent data from InvestingPro provides additional context for American Express's financial position. Despite the analyst's concerns, AXP's market capitalization stands at a robust $194.98 billion, reflecting its significant presence in the Consumer Finance industry. The company's P/E ratio of 20.39 aligns with the analyst's observation of a multiple exceeding 20 times, which underscores the high expectations built into the stock price.
InvestingPro Tips highlight that American Express has raised its dividend for 3 consecutive years and has maintained dividend payments for an impressive 54 consecutive years. This consistent dividend history may provide some reassurance to investors amidst concerns about future growth. Additionally, the company's liquid assets exceed short-term obligations, indicating a strong financial position in the near term.
However, it's worth noting that while AXP is trading near its 52-week high, it's also trading at a high Price / Book multiple of 6.56. This valuation metric, combined with the analyst's skepticism about future growth, suggests that investors should carefully consider the stock's current price relative to its intrinsic value.
For readers interested in a more comprehensive analysis, InvestingPro offers 12 additional tips for American Express, providing a deeper dive into the company's financial health and market position.
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