Buy American? American Express Recovery Is Not Without Its Risks

Despite posting better-than-expected second-quarter earnings results, American Express Company AXP shares fell during Wednesday’s after-hours trading session. This led Barclays analyst Mark DeVries to realize while the stock might be recovering nicely, there are still risks.

“Strong Q2 results should support shares, but valuation and Starwood risks keep us on the sidelines," DeVries noted as he maintained his Equal-Weight rating with an $83 price target (see DeVries' track record here).

A Look Back At Q2 Metrics

• EPS: $1.47 (consensus estimate was $1.43)
• Sales: $8.3 billion (consensus estimate was $8.2 billion)
• Net Income: $1.3 billion (down 33 percent)

“Overall, Q2 results were positive and should be well received,” DeVries wrote. “While guidance for the year looks achievable, the concern for us is the future of the Starwood relationship that could be clarified later this year, which if lost could ultimately pressure billed business and loan growth given that Starwood is roughly 2% and 5% of business and loans, respectively.”

Adj Rev Growth Might Slow, But High End Of Guidance Still Possible

DeVries sees trends remaining relatively strong going forward as higher yield, increased customer engagement, and elevated account acquisition patterns should continue. One pattern that will most likely continue to trend is higher rewards costs.

“The Platinum card enhancements appear to be well received and are driving higher account acquisitions and also card member engagement, so we expect rewards costs will continue to trend higher over the next few quarters,” DeVries said.

Limited Upside Also Seen

"Q2 revenue growth likely isn't sustainable without a US macro pickup. And while there is some embedded operating leverage to come, EPS upside seems capped by near-term reinvestments and sluggish macro," said Deutsche Bank analyst David Ho. Ho placed a Hold rating on American Express, and also highlighted Q2 was likely the high watermark for revenue growth (see Ho's track record here).

To read the latest and exclusive financial news, check out the Benzinga Pro news wire.