Is Financial Stock Laggard American Express Finally Getting Some Love?

Oppenheimer has upgraded American Express Company AXP to Outperform, as it believes travel and entertainment spending should rebound over the next six months on better macro environment.

Shares of American Express have lagged the financials rally post-election (+13.6 percent vs. +17.3 percent for the XLF) as the company is not rate-sensitive and that a strong U.S. dollar is a headwind.

“While we are cognizant of the risks, we would argue that a good deal of the structural headwinds is priced into the multiple,” analyst Ben Chittenden wrote in a note.

Current And Future Environment

Other factors behind the upgrade include low attrition rate and the company’s leverage to GDP. The analyst noted that the growth multiple is still better than most banks' assets growth leverage to GDP growth.

In addition, Chittenden believes American Express will still benefit from any potential tax policy changes and the company could bring back its foreign earnings. The analyst models a base-case 2018 tax rate of 28 percent.

Further, a better economic scenario is expected to drive spending from high-end consumers who generally have a lower propensity to spend tax savings.

“We know that some growth expenses were shifted from 3Q16 to 4Q16 and 1H17 comps will be clouded by Costco loss/USD strength. However, looking past this transition, we think investors should own AXP given the better backdrop,” Chittenden added.

At last check, shares of American Express were up 2.45 percent to $77.72. Chittenden has a price target of $98.