HSBC and BTIG cut American Express rating on valuation, slowing fundamentals

Investing.com -- American Express Company (NYSE:AXP) stock received a downgrade from two investment banks, HSBC (LON:HSBA) and BTIG, with both expressing concerns over the stock's valuation and slowing fundamentals.

HSBC cut its rating on AXP shares to Hold from Buy, citing the stock's significant rally as a key reason for the change. The bank’s stock is up 47% year-to-date and 85% over the past 12 months, outperforming the S&P 500's gains of 21% and 33% for the same periods, respectively.

HSBC analysts acknowledged American Express's strong economic model, manageable credit risk, and appeal to younger demographics. The firm also recognized the company's proven product innovation and strong brand.

Despite these positives, analysts believe that the current stock price fully reflects these attributes. They also highlighted concerns about the company's revenue growth, suggesting that achieving a 10% annual revenue growth target “may be challenging without accelerating economic growth.”

The company’s valuation was another area of concern for HSBC.

The stock is currently trading at 20.3x the consensus earnings estimate for the next twelve months, significantly higher than its 10-year average of approximately 15x. This valuation is only slightly below the S&P 500's historically elevated price-to-earnings multiple, a comparison that has only been seen occasionally in the past decade.

“We find it difficult to argue that AXP should trade at or above a market PE multiple given its still considerable credit portfolio, status as a systemically important banking institution, and economic sensitivity,” analysts said.

HSBC slightly raised the price target on American Express from $265 to $270.

Meanwhile, BTIG analysts also downgraded AXP to Sell from Neutral, driven by two main factors.

First, the firm anticipates greater risks to American Express's core financial metrics, including billed business and revenue growth, as well as net interest income and credit trends.

Second, BTIG argues that the stock's price already reflects overly optimistic expectations for 2025, including earnings per share and revenue growth, which they believe the company is unlikely to meet.

“Said another way, a significant improvement to Amex fundamentals is necessary just to sustain AXP's current share price,” BTIG’s team noted.

The firm’s price objective for the stock remained unchanged at $230.