Morgan Stanley Sees Forward EPS Down on Higher Taxes for American Express

In a report published Thursday, Morgan Stanley analyst Betsy L. Graseck reiterated an Overweight rating and $100.00 price target on

. In the report, Morgan Stanley noted, “AXP is significantly levered to an improving US economy and US consumer. With the OptBlue program, we think Amex can win over small merchants, boosting US acceptance closer to V/MA. Look for 7%/11% rev/EPS CAGR through 2016 as Amex takes share. We expect US billed business growth to accelerate to 9%/12% y/y in 2014/15 vs. 8% y/y in 2013 on resilient GDP growth, improving US consumer balance sheets, greater US merchant penetration & higher int'l share. Expect Amex discount rate to decline as it pushes for small merchant penetration. We model the net discount rate to decline from 1.96% in 2013 to 1.94% in 2014 and 1.92% in 2015. "Amex has been focusing on reducing its non-operating costs (costs ex marketing, rewards & cardmember services), and we expect expense ratio improves from 70% in 2013 to 68% in 2014 /15. We also expect lending charge-offs to remain relatively flat at 1.65% through 2014 and rise marginally to 1.75% in 2015. This compares to a peak of 9.7% in 2Q09.” American Express closed on Wednesday at $87.40.