American Express (AXP): No Silver Lining Here, Wall Street Slashes Estimates

Citi analyst Bradley Ball (and everyone else) cuts estimates and target on American Express (AXP) after the company’s crappy Q2. In sharp contrast to Bank of America (BAC), AXP was brutally pessimistic. Ball’s view:

Results included business deterioration in U.S. Card which resulted from lower home prices, higher unemployment, and deteriorating consumer confidence.

First, billed business growth fell in 2Q08, hitting a cycle low point of 2% YOY in June. Second, U.S. lending monthly roll-rates ticked-up in June for both 0 to 30 days past due and 30 days past due to write-off. Third, U.S. lending NCO rates rose in April and May, and spiked higher in June – reflecting sharply worse trends across all customer segments and tenures.

Commenting on the broader credit environment going forward, Ball is hard-pressed to find grounds for optimism:

The upshot is that environmental conditions apparently deteriorated sufficiently during June to drive surprisingly weak spending and credit performance metrics, which look likely to carry over into at least the second half of 2008. These negative trends are especially troubling since they are evident across all consumer segments, even AXP’s longer-term super-prime card customers – including those with FICO scores in the mid-700s.

Ball cut his target price from $47 to $40 and dropped 2008 and 2009 EPS from $3.35 and $3.65 to $2.85 and $3.15.

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