American Express maintains underperform rating with $159 stock target

On Friday, BMO Capital maintained its Underperform rating for American Express (NYSE:), with a steady stock price target of $159.00. The firm highlighted concerns over the credit card company’s fourth-quarter restructured loan balance, which stood at 144 basis points (bps) of total loans and card member receivables.

This figure is notably 4.3 times higher than the pre-pandemic average, calculated from the first quarter of 2014 to the fourth quarter of 2019.

The firm pointed out that this increase in restructured loans could not be attributed to recent accounting changes. In comparison, Capital One’s (COF) fourth-quarter restructured loan balance was only 1.2 times higher than its pre-pandemic levels, suggesting a significant discrepancy between the two companies.

BMO Capital expressed concern that the growth in American Express’s restructured loans could signal upcoming higher-than-expected credit costs. Restructured loans are generally offered to borrowers facing financial difficulties and can serve as an early warning sign for potential loan losses.

The analysis by BMO Capital indicates that American Express’s reserve rate of 2.8% is still below the Current Expected Credit Losses (CECL) day-one level of 2.9%. This, combined with the marked increase in restructured loans, has led the firm to estimate that American Express’s provision for credit losses could be 10% higher than the consensus in 2024 and 6% higher in 2025.

The firm’s cautious stance is based on the potential for these restructured loans to precede higher loan losses, which could impact American Express’s financial performance in the coming years. The consistency of the $159.00 stock price target reflects BMO Capital’s ongoing concerns regarding the credit card company’s credit risk management.

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