American Express's stock offers 'attractive long-term' potential, but it's pricey: analyst

By Steve Gelsi

Citi initiates coverage of American Express, but analyst Keith Horowitz flags the stock's current valuation as 'a fairly high bar' for a buy rating

American Express Co. drew praise Monday as an "attractive long-term core holding" due to its growth prospects and "strong" management team, but it's currently trading at a relatively high valuation, Citi analyst Keith Horowitz said Monday.

Horowitz launched coverage of American Express (AXP) by assigning a neutral rating to the stock.

"From a tactical perspective, we do not see outsized near-term upside to warrant a 'buy' rating as we believe the bar has been set fairly high in terms of the valuation multiple," Horowitz said.

American Express's stock rose by 0.4% on Monday, bringing its gains for the year to nearly 25%. That return outpaces the 12.4% rise by the S&P 500 SPX so far in 2024.

"The market now seems to be pricing in a rebound in discount revenues which we believe is possible, but our in-house economic view is for a pullback in consumer spend," Horowitz said. "We take a more cautious outlook."

Over time, American Express's business could provide investors with above-average growth due to its position in expanding revenue pools with limited credit risk, he said.

"Their positioning in the premium and younger segments will drive growth stronger than peers," Horowitz said.

Luxury goods and services inflation remains higher than the consumer-price index and could drive higher credit-card spending by wealthy clients, he said.

International expansion stands out as another key growth driver, along with the credit-card company's relationships with millennial and Gen Z consumers, he said.

American Express also plans to sweeten its value proposition to card members by adding more benefits, which in turn fuel higher annual fees, he said.

"While we have seen other banks enter this market due to the attractive economics, [American Express] has unique advantages in terms of brand awareness, closed loop network (where we were impressed to see 27% of its consumer platinum and 35% of business platinum card rewards are co-funded by its merchant partners), and established travel infrastructure," Horowitz said.

-Steve Gelsi

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06-10-24 1558ET

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