4 Reasons Why Deutsche Bank Upgraded American Express

February 25, 2015

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In a report published Wednesday, Deutsche Bank analyst David Ho listed four reasons why he upgraded shares of American Express Company (NYSE: AXP) to Buy from Hold with a price target raised to $90 from a previous $80.

"Growth expectations for American Express have been reset lower after the loss of Costco/JetBlue and the negative Department of Justice ruling," Ho wrote. "However, we believe the company will be able to restore its earnings power sooner than expected."

Ho offered four reasons to support his bullish thesis:

1. American Express could mitigate the $0.75 earnings per share drag from Costco by up to approximately $0.47, implying 8 percent earnings per share upside to consensus 2016 estimates.
2. Management has "breathing room" to manage earnings per share expectations in 2015 given a "minimal" revenue drag (estimated at $150 million) from Costco in 2015 and efficiency gains coming online in the second half of 2015 from prior restructuring initiatives.
3. American Express has the largest amount of excess capital among consumer finance stocks under Ho's coverage and the company can deploy the capital towards new partnerships, acquisitions, and eventually higher dividend payments and increased share buyback programs.
4. Shares of American Express are trading at 13.7x multiple to 2016 estimates, implying the network is being valued at a 30 percent to 35 percent discount to Visa and MasterCard.