On Monday, BMO Capital Markets adjusted its outlook on American Express (NYSE: NYSE:AXP) shares, increasing the price target to $175 from the previous $167, while maintaining an Underperform rating on the stock. The revision follows American Express's first-quarter earnings, which surpassed expectations with a broad-based beat.
The firm's analyst cited a positive shift in near-term estimates, with an increase of up to 7% following the company's recent earnings report. This adjustment was attributed to higher-than-anticipated net interest income (NII) and slightly reduced credit costs, although these were somewhat balanced by an expectation of increased operating expenses.
Despite the strong first-quarter performance, concerns were noted regarding American Express's high rate of loan restructuring, which remains over four times the level seen before the pandemic. This, according to the analyst, could lead to higher credit provisions in the future, potentially dampening earnings per share (EPS) growth.
The new price target of $175 is based on a valuation method that includes a 4.1 times multiple on the two-year-forward tangible common equity (TCE), which is derived from a 37% return on tangible common equity (RoTCE) and an 11 times target price-to-earnings (P/E) ratio. The analysis reflects a cautious outlook on the stock, suggesting that while near-term financials have improved, there are potential risks on the horizon that could affect future performance.
InvestingPro Insights
As we delve into the performance and outlook for American Express (NYSE: AXP), InvestingPro data provides a deeper understanding of the company's financial health. With a robust market capitalization of $166.19 billion, American Express stands as a significant entity in the consumer finance industry. Its P/E ratio, which currently stands at 19.03, and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 18.22, indicate a valuation that is trading at a low multiple relative to near-term earnings growth. This aligns with the InvestingPro Tip that highlights the company's trading at a low P/E ratio. Additionally, the company's revenue has grown by 9.33% over the last twelve months as of Q1 2024, showcasing a positive trend in its financial performance.
InvestingPro Tips further reveal that American Express has maintained dividend payments for 54 consecutive years, which could be a sign of stability and commitment to shareholder returns. Moreover, the company's liquid assets exceed its short-term obligations, providing it with a solid liquidity position. For those interested in exploring more about American Express, InvestingPro offers even more insights; there are 11 additional InvestingPro Tips available, which can be accessed for a deeper analysis. To benefit from these insights, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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