RBC is optimistic on American Express despite an uncertain near-term outlook for the U.S. consumer. Analyst Jon Arfstrom upgraded American Express to outperform from sector perform. He increased his price target by $3 to $200, suggesting more than 25% upside from Friday’s close. RBC said it has a balanced longer-term outlook on the consumer. However, in the near-to-medium term, the bank expects investor sentiment to be more mixed amid a normalization in credit quality and spending trends — in addition to the restart of student loan payments next month. “In this environment, we believe top-of-wallet players are best positioned to outperform,” Arfstrom wrote in a Tuesday note. Arfstrom noted that he favors American Express due to its limited revenue reliance on late fees. A looming headwind over the sector is the Consumer Financial Protection Bureau’s proposal to essentially cap “excessive” late fees by approximately 75%. If the measure passes, companies that are more reliant on late fees will be more at risk, according to Arfstrom. The analyst noted he sees a decision on the matter sometime in the fall. American Express’ “higher concentrations of super prime and prime customers should drive better than peer losses over the cycle,” said the analyst. In contrast, full spectrum lenders such as Bread Financial and Symphony Financial are likely more exposed to the late fee proposal and “will need to spend more time focusing on mitigating this earnings headwind.” “Furthermore, nearly a third of the company’s loans and receivables are related to the charge-card product, whose balances are typically paid off in full each month, which further demonstrates that the company’s customer base is differentiated from the industry,” the analyst said. Shares of American Express added 1% Tuesday during premarket trading. The stock is up 8% year to date. — CNBC’s Michael Bloom contributed to this report.
