Morgan Stanley Analyst: American Express Antitrust Reaction 'Overdone'

American Express Company AXP loss of a federal antitrust lawsuit won't hurt its business, an analyst said Thursday.

Morgan Stanley's Cheryl M. Pate said that in practice, merchants have long ignored language in their American Express contracts that bar them from steering customers to lower-priced cards.

A judge ruled Thursday that the contract language violates antitrust law, and American Express vowed to appeal.

American Express closed Thursday at $78.40, down $1.38. The shares are off more than 7 percent since last week when the company said it lost an exclusive credit card deal with Costco Wholesale Corporation COST.

But market reaction to the antitrust ruling Thursday is "overdone," according to Pate, who maintained an Overweight rating Thursday.

U.S. merchants' acceptance of American Express cards rose to 73 percent in 2014, from 68 percent a year earlier, according to data released Thursday by Nielsen Co.

Pate attributed the gain to the rollout six months ago of American Express' OptBlue card, which is aimed at smaller merchants and priced on a par with MasterCard and Visa.

"OptBlue merchants don't have an incentive" to steer customers to other cards, Pate said.

"We believe the U.S. consumer is poised for their best year of the recovery," Pate said, suggesting that this offers upside to the outlook for American Express billings.

Among 32 analysts following American Express, 16 maintain Hold ratings and 14 are at Buy; one is at Overweight and one at Underweight, according to FactSet.