American Express (AXP) Guidance Disappoints but More Visibility Seen as Positive, Says Analyst
Deutsche Bank maintained a Buy rating on American Express (NYSE: AXP) with a price target of $90. Shares weakened after American Express reported Q4 results and, more importantly, FY16 and FY17 guidance. Analyst David Ho sees increased visibility as a positive.
"Investors will likely be disappointed by mgmt’s $5.60 EPS outlook for 2017 near-term, but mgmt’s new guidance finally “marks to market” worsening conditions vs. last Feb and makes it easier to establish a “floor” to the shares (i.e. for now, investors simply take 10-12x $5.60 to get $56-67 as DFS/COF trade at 7-8x consensus 2017E)," said Ho.
"With more clarity on expenses and Costco, the focus can be on upside to underlying growth. For example, we think AXP has an opportunity this year to use its capital lever to generate revenue upside: we believe investors would reward AXP more for using freed up regulatory capital from Costco (of ~$1.4b, or assuming 10% supporting $14b of RWA) to win/preserve the Marriott-Starwood relationship versus a one-time buyback," added the analyst.
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Shares of American Express closed at $62.64 yesterday.