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Investing.com -- Redburn has upgraded American Express (NYSE:AXP) to Neutral following a more than 25% drop in the stock price since its January high, citing a more balanced valuation relative to future returns.
“Amex’s share price has fallen over 25% from its January high, underperforming both the S&P 500 (-16%) and the S&P 500 Banks (-18%) over the same period,” Redburn analysts wrote.
They added: “We feel that the valuation now more appropriately matches the future returns profile of the business.”
Redburn’s previous caution, outlined in a December 2024 note, focused on the growing disconnect between the stock’s “record multiple” and slower earnings potential.
Now, with the two-year forward price-to-earnings ratio at approximately 13.5 times, closer to the long-term average, the firm sees less downside risk.
Redburn lowered its price target from a previously undisclosed level to $255, representing a 5% potential upside.
The firm maintains its skepticism about American Express’s ability to hit its long-term target of 10% or more in revenue growth, calling its adjusted earnings forecasts for 2025–2027 “5-9% below consensus.”
However, analysts see reasons for resilience. “A high proportion of Amex’s cost base is variable, with 56% attributable to customer expenses, providing a natural hedge against a contraction in spending,” they wrote.
While Amex remains vulnerable to slowdowns in discretionary spending—28% of its billed business is tied to travel and entertainment, Redburn noted that “Amex’s customer base has become more premium since previous downturns, providing greater resilience from a credit perspective.”
Despite trimming its profit-before-tax forecasts by 1% to 4% through 2027, Redburn expects minimal impact to near-term earnings thanks to increased buybacks enabled by the stock’s recent decline.