Investing.com -- Baird analysts upgraded American Express (NYSE:AXP) to Neutral following a “persistent sell-off in the broader market” that has made it “difficult for us to remain pessimistic on AXP's high-quality franchise.”
While valuation concerns remain, the firm now sees “risk/reward balanced at ~14.5x 2026E EPS.”
“[We] would no longer be short this quality franchise at today's price,” added the firm.
AXP has delivered “~9% revenue growth and ~19% core EPS growth in 2024” with strong execution, Baird noted.
The company’s “franchise value continues to resonate with Amex’s younger customer base, which should support consistent revenue growth and new card member spend over time.”
However, the firm still considers the stock “too expensive for new money.”
Lower revenue expectations are “generally priced in, leaving estimate revisions room for upside,” said Baird.
The firm notes that AXP’s management previously warned that “the Street’s Q125 revenue expectations were too high” due to fewer days in the quarter from the leap year and “FX losses due to a stronger dollar.”
Since then, “the DXY has declined ~4%, which should alleviate some of the FY2025 revenue concerns.” Additionally, “Street FY2025 revenue estimates are trending lower and towards the bottom end of AXP’s 8%-10% revenue guide.”
Baird also highlighted AXP’s “best-in-class” credit quality, which has “held up better than we expected” as customers prioritize maintaining relationships with the bank.
While American Express is “not immune to a larger consumer slowdown,” the firm expects AXP to perform relatively well in a tougher credit environment.
Baird sees the valuation as “reflecting modestly elevated expectations” but “warranted given card base premiumization, improved credit quality, and improving return metrics.” AXP trades at “~14.2x consensus 26E EPS” and at a “~20% discount to the S&P.”