Morgan Stanley Downgrades American Express to Equal Weight

Morgan Stanley analyst Betsy Graseck downgraded American Express (NYSE:AXP) from Overweight to Equal weight to reflect increased recession risk.

The analyst reminds investors that a recession is only 37% priced in on a P/TBV basis. In addition to the downgrade, the reduction in the price target from $223 to $143 reflects the decline in forecasts. Betsy Graseck, "We are lowering our 2023 EPS by a median of 7% and our target multiples by a median of 8%, resulting in a median 15% reduction in price targets. Our base case scenario assumes slower economic growth, while our Bear case assumes stagnation and lower multiples." Slowing consumer spending is expected to negatively impact American Express as "inflation takes a larger share of household disposable income." "Outside of our coverage, AXP has the highest FICO skew among card lenders and the highest skew to senior consumers, with subprime loans accounting for only 5% of its card loan book. AXP also derives ~60% of its revenues from transaction fees on spending volumes, compared to 10-20% for most issuers," Graseck wrote in a note to clients. Slowing growth will also reduce multiples, which will ultimately affect the AXP stock price. Graseck also downgraded Capital One (NYSE:COF) to Equal Weight from Overweight due to slowing spending, while downgrading SEI Investments (NASDAQ:SEIC) to Underweight from Equal Weight due to weakening capital markets. Shares of American Express fell almost 3% before the open on Tuesday.