An Upgrade May Not Be Enough To Lift American Express
The financial sector, including American Express (NYSE:AXP) is expected to be one of the hottest sectors in the second-quarter earnings reporting season. The analyst consensus targets have been rising steadily since the start of the quarter and they're still on the rise.
The S&P 500 financial sector is expected to post year-over-year earnings growth of 117% which is up 2000 basis points from Mar. 31. The latest, and certainly not the last, upgrade is on American Express and it suggests break-out results for AXP shareholders, as well as the broader financial sector.
American Express Upgraded To Buy From Neutral
American Express stock was upgraded to Buy from Neutral by Goldman Sachs on the outlook the company would exceed its original 2020 expectations by 2022 and see double-digit growth afterward.
Among the catalysts driving the sentiment are increasing consumer spending, increasing SME spend, and benign credit conditions. The combination provides an avenue for upside as well, which makes the $225 price target more of a base case scenario rather than the long-term Outlook.
The analyst community is more neutral on American Express, but there is a slightly bullish bias to the group. Nine of the 18 ratings are a Buy, while seven are neutral and two are bearish.
Two items that stand out when looking at this data are that the consensus estimate has been on the rise and still trailing actual price action. Another is that several analysts have given up on the company over the past 90 days, suggesting more money on the sidelines than the actual consensus is indicating.
At $137, the broad consensus estimate for American Express does not reflect the most recent activity from the analyst community. The trend among the analysts since the last reporting period has been bullish and includes multiple price target upgrades as well as rating upgrades.
The consensus here is more bullish with six of the nine analysts holding a buy or better rating and three neutral. Their consensus target is close to $165 which makes the stock fairly valued going into the earnings report.
The Outlook Is Mixed For American Express Q2 Results
American Express is expected to have a decent second quarter and could very well beat the consensus estimates, but right now is not expected to return to the pre-COVID revenue levels.
The analysts are looking for $9.49 billion in consolidated revenue which is good for a 4.7% sequential gain and a 23% year-over-year gain, but leaves revenue down 12% from 2019. The area where American Express may shine is on the bottom line.
The current consensus is only $1.55, which is down sequentially and from 2019. Both the 2020 and 2019 second quarters produced earnings in excess of $2 and we think that is a possibility this quarter as well. Regardless, what the market will be looking for is revenue strength, earnings strength, and a positive outlook for the second half relative to the current consensus.
The Technical Outlook: American Express Hits A Peak
Shares of American Express surged in the wake of the Goldman Sachs upgrade but that's the best of the good news. Profit takers took charge of the market and drove price action back to break even creating a very bearish-looking candle.
The near-term price action may see some more downward pressure as we approach the earnings report. If the report is good enough to impress the market, price action should bounce and begin moving higher again. If not, technical weakness and sour sentiment could take the stock below the short-term moving average and down below the $160 level.
