Should You Buy American Express After Recent Gains?

Deutsche Bank analysts Matt O’Connor and worries of "sluggish revenue," but consider buying if the stock falls a bit more.

Anthony Russo
    Aug 28, 2020 11:15 AM  PT
Should You Buy American Express After Recent Gains?
author: Anthony Russo   

Over the past week or so, shares of American Express Company (NYSE: AXP) have performed relatively well as the stock market recovery begins to finally drag ban stocks along with it, albeit slowly. 

Low-Interest Rates Could Be a Factor for Awhile

But will the gains for American Express continue? Well, it would be a bet against analysts, as low bank interest rates could be a factor for quite some time, while economic recovery remains uncertain. 

"We continue to expect the recovery to be uneven and worry the combination of sluggish revenue, uncertain credit and political risk will limit bank stock gains in the near/medium term," Matt O'Connor, an analyst at Deutsche Bank, wrote in a note, as cited by Barron's.

That, of course, would not only be disappointing for American Express but its rivals Visa (NYSE: V) and Mastercard (NYSE: MA) as well. 

Although American Express did beat some estimates, it is still coming off a shaky second quarter. In the period, revenue plunged 29% year-over-year to $7.7 billion, while its earnings per share tumbled 86% to 29 cents. 

Some Positive News on American Express to Consider

One positive for shareholders is American Express was it able to post an earnings beat. Luckily for the Dow Jones component, its business model is much safer than some companies that operate in the lending sector. In the second quarter, American Express generated 52% of its revenues from discount cards or swipe fees; just 25% came from net interest income on loans. 

Also, the company appears to be in a strong position to keep paying out its dividend, which cost $366 million in the second quarter. American express ended the second quarter with $61.4 billion in cash and investments. 

Target the Stock at $85

But should you buy it? Considering shares of American Express are now up 6% to date from its close on Aug. 18—I would wait for the stock to fall to around $85 per share before buying. That said, you shouldn't expect a full recovery until things go back to normal—but that could be a while. 

However, this is the type of stock you should be looking to put your portfolio. Shares of American Express are down nearly 18% year-to-date.