By Senad Karaahmetovic
Morgan Stanley analysts upgraded American Express (NYSE:AXP) to Overweight from Equal Weight and promoted the stock to Top Pick within the broker's research coverage of Consumer Finance companies.
The upgrade move comes as the analysts prefer to shift their stock picks toward more high-credit quality stocks, as well as those that offer sustainable revenue growth and positive operating leverage.
"AXP has a lower risk credit skew with higher FICO card members (5% subprime vs. peer median of ~20%), and we see credit losses hitting pre-COVID levels only by 2024 while all other card peers will overshoot on deterioration," the analysts said in an upgrade note.
Moreover, Morgan Stanley sees sustainable revenue growth for AXP, expected to increase by over 15% this year. On the other hand, management's comments about lower costs should help deliver ~400bp of positive operating leverage in 2023, the analysts project.
"AXP [is] one of the only positive operating leverage and EPS growth stories in our coverage group through 2023-24," they conclude.
The new price target is $186 per share, which suggests only a 4% upside from yesterday's closing price.
On the other hand, the analysts downgraded Discover Financial Services (NYSE:DFS) to Equal Weight as the bull thesis has largely played out.
American Express shares are up about 1% in pre-open Wednesday, while DFS trades about 2.3% lower.