FBR cuts American Express’ (AXP) target price another $6 to $32 as the stock continues to tank. The firm paints a dour outlook for the economy and consumer as well:
We reiterate our Underperform rating on the shares of AXP, reflecting our belief that the valuation does not properly reflect the underlying credit and revenue risk. We are reducing our price target to $32, or 3.2x book value, a similar valuation reached in the prior recession, but still a substantial premium to other financials that bear credit risk.
June trust data exhibited continued credit deterioration and portfolio yield compression. We expect credit costs to increase significantly due to the rapid growth of credit card receivables in recent years (40%+ growth the last two years) with heavy exposure to FL and CA, combined with normal seasonal deterioration and deteriorating consumer financial health (increasing unemployment, stagnant real wages, restricted access to credit, etc.).
We expect slowing retail sales and travel activity (roughly one-third of billed business) to depress billed business growth. In addition, with consumers foregoing discretionary purchases, we expect pressure on the discount rate, as a greater percentage of purchase volume is comprised of lower-margin ‘everyday spend’ items.
FBR reiterates UNDERPERFORM on American Express (AXP), target cut from $38 to $32.