American Express: Should You Buy Into The 10%+ Rally Since July?

(Preview) Company Update (AXP US) (Neutral)

Summary

• AXP shares have gained 11% since July 3, outperforming the roughly flat Visa and Mastercard shares, but we continue to be cautious.

• U.S. consumer spending was again strong in August, but we worry about how AXP needs to spend to compete with banks.

• Unlike Mastercard and Visa, AXP earnings have remained smaller than before COVID-19, despite volumes having grown larger.

• AXP's profit margin fell again in Q2, and full-year outlook for expenses were raised, though comparables will become easier in H2.

• Ultimately, we are unconvinced AXP can grow revenues at 10%+ and EPS at low-teens after 2024 per management targets. Avoid

Introduction

We review our Hold rating on American Express after shares have risen 11% since our last update on July 3, even with Visa and Mastercard shares having been largely flat in the same period.

We initiated our Hold rating on AXP in March 2019, stating our view that its shares should be avoided. At present AXP stock stands at a gain of 46% (including dividends), ah…