UPDATE: UBS Cuts American Express (AXP) to Sell; Survey Shows Loss of Costco Could Have Larger Impact Than Expected
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UBS downgraded American Express (NYSE: AXP) from Neutral to Sell with a price target of $67. Following a survey, analyst Matthew Howlett sees the loss of Costco Wholesale (NASDAQ: COST) as a 'bigger deal' than previously expected, and he thinks post-Costco earnings growth will falter.
"We are downgrading our rating for AXP to Sell (from Neutral) and lowering our price target to $67 (from $81) in light of the results from a UBS Evidence Lab survey of U.S. Costco members and AXP-Costco co-brand cardholders, the release of AXP's 3Q15 performance results, and management's recent comments," said Howlett.
"The survey results point to a larger detrimental impact of the end of the partnership than we had previously projected. We now expect AXP to lose 8.1% of its cardmembers (vs. our 2.5% previous estimate), 8.0% of its network volume (vs. 4.5%), and 18% of its loan portfolio (vs. 12%) after March 2016. As a result, we do not expect the "positive" 2016 EPS growth to which management has guided to be meaningful, nor do we expect the company to achieve its long-term earnings growth target in the next several years. We simply do not see a clear path to strong earnings growth even after the Costco dust has settled," continued the analyst.
Howlett added, "We continue to see AXP's closed-loop model as having lost some of its luster and meaningfulness to merchants as access to broad swaths of consumer data continue to transform the card space. The failure of Costco to renew the partnership is an emphatic punctuation mark to this point. We believe a significant transformation is needed for the company to adapt to the evolving nature of the payment industry and its own closed-loop model, a transformation that could last several years."
Shares of American Express closed at $74.59 yesterday.
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