By Senad Karaahmetovic
Morgan Stanley analyst Betsy Graseck downgraded American Express (NYSE:AXP) to Equal Weight from Overweight to reflect rising recession risk.
The analyst reminds investors that a recession is only 37% priced in on a P/TBV basis. The downgrade call, as well as lowered price target to $143 from $223, is reflecting lowered estimates.
“Taking our 2023 EPS down median 7% and target multiples down median 8%, resulting in a median 15% cut to price targets. Our Base Case bakes in slowing economic growth, while our Bear Case bakes in a recession with trough multiples,” Graseck told clients in a note.
Slower consumer spending is expected to negatively impact American Express as “inflation takes a larger share of household disposable income.”
“Out of our coverage, AXP skews highest to high-end consumers, with the highest FICO skew among card lenders and subprime loans comprising only 5% of its card loan book. AXP also derives ~60% of its revenues from transaction fees on spending volumes, vs. 10-20% for most card issuers,” Graseck told clients in a note.
The slowing growth will also reduce multiples that will ultimately impact the AXP stock price.
Graseck also downgraded Capital One (NYSE:COF) to Equal Weight from Overweight on slower spending, while SEI Investments (NASDAQ:SEIC) is downgraded to Underweight from Equal Weight on weaker capital markets exposure.
Shares of American Express are down almost 3% in pre-open Tuesday.