Source: davit kirakosyan
BofA Securities Adjusts Price Target on American Express
BofA Securities recently lowered its price target on American Express (NYSE: AXP) to $381 from $382, while maintaining a ‘Buy’ rating. This adjustment comes in the wake of a comprehensive review of the company’s February operating performance. Despite the minor downward revision, BofA’s stance on the stock remains positive, given American Express’s consistent financial performance and potential for future growth.
Impact of February Operating Performance
According to BofA Securities, the February results indicated a modest deceleration in loan growth on a year-over-year basis. However, this slight slowdown in loan growth is not a cause for concern. It’s essential to put this into context. Many businesses have been grappling with the economic impacts of the pandemic, and a modest deceleration in loan growth is not unexpected in such a scenario.
On the positive side, delinquency trends for American Express remained consistent with typical seasonal patterns. This consistency indicates that despite the economic challenges, customers are generally keeping up with repayments, and the credit card issuer is managing its credit risk efficiently. Furthermore, loss performance came in slightly better than anticipated, which is a positive indicator of American Express’s overall financial health.
Loan Growth and Loss Rates
The report showed that the loan growth of American Express continues to track in the mid- to high-single-digit range. Despite the slight deceleration, this growth rate is notably healthy, especially when compared to other credit card issuers. Moreover, the company’s loss rates have remained steady at around 2%, which aligns with expectations and outperforms most other credit card issuers. This demonstrates American Express’s resilience in managing its loan portfolio, even in challenging market conditions.
Earnings Forecasts Update
BofA Securities also updated its earnings forecasts for American Express. It raised its first-quarter EPS estimate to $4.00 from $3.93, reflecting optimism about the company’s near-term earnings potential. However, minor adjustments were made to the 2026 and 2027 EPS projections, which were revised to $17.48 and $20.04, respectively from $17.51 and $20.08. These adjustments, albeit minor, reflect the evolving market dynamics and economic conditions.
Revised Price Target
The revised price target of $381 was based on an unchanged valuation multiple of 19 times the firm’s 2027 earnings estimate. This suggests that BofA Securities sees long-term value in American Express’s shares. Despite the slight decrease in the price target, the valuation multiple used by BofA Securities underscores the belief that American Express will continue to generate strong earnings in the coming years.
In conclusion, while the slight lowering of the price target might raise eyebrows, it’s important to look at the broader picture. BofA Securities maintains a ‘Buy’ rating on American Express, indicative of their confidence in the company’s financial performance and future prospects. This outlook is supported by American Express’s consistent loan growth, effective management of credit risks, and promising earnings estimates. These factors position the company well for continued success in the competitive credit card industry.