RBC Capital Markets analyst Jon G. Arfstrom revised several credit card companies' ratings and price targets on the changed near-term view of the industry.

The analyst upgraded the rating on American Express Co (NYSE:AXP) to Outperform from Sector Perform at an increased price target of $200 from $197. 

On the other hand, the analyst lowered the rating for Synchrony Financial (NYSE:SYF) and Bread Financial Holdings Inc (NYSE:BFH) to Sector Perform from Outperform at a reduced price target of $37 (from $41) and $43 (from $46), respectively. 

Also, the analyst cut the price target for Capital One Financial Corp (NYSE:COF) to $113 from $125 and Discover Financial Services (NYSE:DFS) to $120 from $130. 

Arfstrom sees near-term risk from the CFPB's late fee proposal and some potential sentiment risk from the ongoing normalization of credit quality and spending trends. 

The analyst anticipates CFPB's late fee NPR to be finalized this fall and likely implemented in 2024, with the industry having already signaled that it plans to challenge this proposal through litigation.

Notably, the NPR calls for a lowered late fee safe harbor to $8 from $30, which the industry relies on today to set late fees. 

The analyst expects headwind sentiments toward more exposed companies until the financial impacts and mitigation strategies are clarified and sees top-of-wallet players (AXP & DFS) as best positioned to outperform.

Over the medium term, the analyst expects the industry to initially litigate the issue, which, if unsuccessful, can lead to altering economics via partner negotiations, client reductions, other potential fees, or higher rates. 

Apart from this, the analyst sees credit quality reaching normalization and expects weak customer spending in a late-cycle environment as a headwind. 

While the analyst is not expecting a severe deterioration in credit, he notes the mounting investor sensitivity to higher losses and normalization in a tight labor market. However, the analyst sees Current Expected Credit Loss (CECL) reserves reflecting expected higher losses and continued credit erosion.

Meanwhile, Arfstrom maintained a balanced long-term outlook for the industry, expecting the challenges to be manageable.

Price Action: AXP shares are trading lower by 0.09% at $159.47 on the last check Tuesday.

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