Morgan Stanley: Buy American Express On 'Any Dips'

Morgan Stanley's Cheryl M. Pate expects the loss of a co-branding relationship with Costco Wholesale Corporation COST will reduce AmEx's earnings between 2.5 percent and 4.5 percent.

Earlier this week, the company said it failed to negotiate favorable extension terms; the exclusive agreement with Costco will expire on March 31 next year.

But expenses saved from the lost business can be used to cut costs, or they can be redeployed to other endeavors to recoup lost revenue, Pate explained.

Also worth noting, AmEx will retain existing loans and the customer list, likely to yield a one-time gain from the sale to a competing bidder.

"We would be buyers on any dips," Pate added.

Between 25 percent and 50 percent of Costco's $112.64 billion in annual sales are made through the AmEx network, with up to 16 percent of its revolving loan portfolio sourced through AmEx co-branded cards, according to Pate.

"It represents a large loss," Hecht said in a research note.