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>>> American Express Has Challenges Its Rivals Don’t Face, Analyst Says


Barron's

By Carleton English

Oct. 9, 2020


https://www.barrons.com/articles/american-express-has-challenges-its-rivals-dont-face-analyst-51602270567?siteid=yhoof2


Expectations for the card company’s 2021 revenue may be too high, according to Susquehanna Financial.

American Express stock was hit with a rating downgrade as Wall Street worries the card issuer will suffer from continued weakness in travel and entertainment spending.

Shares of the company were up 0.4% in afternoon trading despite the downgrade by Susquehanna Financial analysts to Neutral from Positive. The S&P 500 was up 0.9%,

The analysts expect that the credit-card issuer will have difficulty navigating a world where people are spending more time at home, given that many of the merchants it does business with are also struggling.

The back story. American Express (ticker: AXP) shares have recovered from their March lows but are still down 15% this year. They are lagging behind Visa (V), which is up 9%, and Mastercard (MA), which has gained 17%.

American Express, which is more closely associated with business and travel spending than its peers, has faltered because both of those areas have been hard-hit during the last seven months. There is little sign of activity returning to pre-pandemic levels anytime soon.

Offices have been reluctant to bring workers back on site, and restaurants are operating at reduced capacity. Sports are still largely being played in stadiums with cardboard cutouts of fans. Broadway will remain closed through May 2021, it was announced Friday.

What's new. James Friedman, analyst at Susquehanna, doubts that the card issuer will be able to do much better than the merchants it does business with.

“It would be hard for AXP to do better than their merchants, so consensus ‘21 revenue up 11% looks full to us,” Friedman wrote Friday. He said growth of 7.5% appears more reasonable after looking at projections for the airline, hotel, dining, and retail industries.

He credits American Express for quickly managing its credit risk at the start of the shutdowns, but says it faces other disadvantages. While Visa saw a drop in credit-card spending earlier this year, that was more than offset by an increase in debit-card usage. American Express is primarily a credit-focused business, Friedman wrote.

Looking Ahead. Despite the downgrade, Friedman maintained his target of $110 for the stock price, given that it is not far from Friday’s level near $107. He expects third-quarter revenue will come in at $8.6 billion and that earnings per share will be $1.06, up from previous estimates of 97 cents a share. But looking to 2021, he expects the company will earn $7.43 a share, down from his previous forecast of $7.65.

American Express reports its third-quarter results on Oct. 23.

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