The year 2021 has been prosperous for American Express shares, with solid gains. However, a prominent Wall Street team believes that the positive streak is coming to an end for this credit-card stock, indicating that it is time to sell.
On Monday, Baird analysts took a negative stance on American Express by downgrading it from Neutral to Underperform. Led by David George, the team also introduced a price target for the first time, setting it at $190 per share.
In the same report titled “Curb Your Enthusiasm,” Baird analysts made similar ratings adjustments for Capital One Financial and Wells Fargo. Both these companies were downgraded from Outperform to Neutral. The new price target for Capital One was adjusted to $145 from $150, while a price target of $55 was introduced for Wells Fargo.
As of midday trading, American Express and Wells Fargo experienced a 1% dip to $187.08 and $49.42, respectively. Capital One, on the other hand, remained relatively flat at $132.41. In the past 12 months, these stocks have seen impressive gains of 24%, 35%, and 16%, respectively.
Baird highlighted three key factors contributing to the performance of these stocks: addressing unfounded funding concerns, capturing loan growth opportunities, and gaining trader confidence in a smooth economic transition.
However, the analysts cautioned that American Express has now encountered a ceiling and investors should consider taking profits on their investments.
Market Analysis: AXP, Capital One, and Wells Fargo
The recent analysis conducted by a team of experts suggests that American Express (AXP) may not be a lucrative investment option in the current market. While the stock is not particularly expensive, the team anticipates limited upside potential and recommends selling it to generate funds. They base their assessment on the expected reversion of unemployment rates and subsequent card losses in the upcoming quarters. Additionally, they predict a moderation in top-line growth as the inflation tailwind wanes.
In a similar vein, the team also takes a cautious stance on Capital One and Wells Fargo, highlighting that the risk/reward ratio for both stocks has become more balanced. These downgrades occur just before the anticipated bank earnings season, which will see major players such as JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo reporting their financial results.
The analysts anticipate that companies during this earnings season will provide a general outlook for 2024, indicating a continuation of modest declines in net interest income, stagnant fees, and stable credit quality trends. While no significant negative catalysts are expected in the immediate future, the analysts also believe that a significant positive catalyst is unlikely to emerge during this earnings season. As a result, they suggest that better buying opportunities may arise in other areas, such as regional banks, rather than large-cap or credit-card stocks.
Overall, it seems prudent to heed the cautionary advice provided by the analysts. The potential for growth in AXP may be limited, and investors should consider alternative options to maximize their returns.