Bank of America Names American Express a Top Pick Despite Consumer Headwinds

American Express (AXP) could thrive despite challenges faced by the U.S. consumer, according to Bank of America. The bank reiterated its buy rating for American Express and set a price target of $205 per share, indicating a potential 20% upside from the previous day's closing price. Analyst Mihir Bhatia stated that although there are risks in the broader sector if consumer spending slows down and credit normalizes, American Express is expected to remain more resilient than its peers. Bhatia highlighted American Express' super-prime and high-income cardmember base as a significant advantage, as it is better protected from inflation pressure. Additionally, American Express has shown strong credit performance, robust new card acquisitions, and solid spending momentum. In 2023, American Express stock has increased by over 16%, surpassing rivals Visa and Mastercard. However, Bhatia expressed concerns about the company's future performance, citing a weakening macroeconomic environment and the potential decline in travel spending as factors that could impact American Express' targets for the remainder of 2023 and into 2024. On July 21, American Express will release its second-quarter results, and analysts anticipate adjusted earnings per share of $2.81. Bank of America, on the other hand, expects adjusted earnings per share of $2.79. Bhatia noted that the upcoming quarter's results and earnings calls could provide valuable insights into the health of the U.S. consumer, real-time spending trends, and management's expectations regarding credit outlooks.

Conclusion: A Hot Take on the Impact for New Businesses

The analysis and outlook for American Express provided by Bank of America present an interesting opportunity for new businesses in the financial services sector. Despite potential challenges faced by the U.S. consumer, American Express is expected to remain resilient, making it an attractive investment option. This positive assessment is driven by factors such as American Express' super-prime and high-income cardmember base, which offers better protection from inflation pressure than its peers. For new businesses entering the financial services industry, this indicates that targeting a similar customer segment, with a focus on high-income individuals and super-prime customers, could yield favorable results. By catering to these affluent consumers who are likely to experience less financial volatility, new businesses may create a more stable customer base that can weather economic uncertainties. Furthermore, American Express' recent success in terms of credit performance, new card acquisitions, and strong spending momentum showcases the potential for growth in the sector. This indicates that there is still room for new players to make an impact and grab a share of the market. However, it's important for new businesses to remain mindful of the mentioned concerns over a weakening macroeconomic environment and a potential decline in travel spending. These factors could impact American Express' targets, as well as the broader industry. Therefore, new businesses should aim for diversification and adaptability to mitigate potential risks associated with changing consumer spending habits. Overall, the current outlook for American Express, as outlined by Bank of America, offers valuable insights for new businesses in the financial services sector. By focusing on the super-prime and high-income customer base, leveraging robust credit performance, and remaining dynamic in response to market changes, new businesses can position themselves for growth and success in the industry. Article First Published at: https://www.cnbc.com/2023/07/11/bank-of-america-names-american-express-a-top-pick-despite-consumer-headwinds.html