Analysts at Stephens have upgraded American Express Co. (AXP) to equal weight from underweight in light of the expected drop in interest rates in 2024. Despite issuing a profit warning in a December webcast, American Express is predicted to regain its historical revenue and earnings-per-share growth by 2025, according to analyst Vincent Caintic.
One positive factor for American Express is the falling interest rates, which Caintic notes has a slight benefit due to better funding costs for charge-card receivables without yield impacts. This is particularly advantageous since most of American Express’s revenue is fee-based and therefore not affected by falling rates.
While there are concerns about Amex’s relative credit performance, Caintic believes that the superprime customers will likely benefit from the interest rate changes.
Despite the upgrade, American Express’s stock dipped by 0.2% on Tuesday.
Stephens also made positive adjustments in their ratings for lease-to-own companies Aaron’s Co. (AAN), Prog Holdings Inc. (PRG), and Upbound Group Inc. (UPBD), upgrading them from equal weight to overweight based on improved prospects in a lower-interest-rate environment.
In the case of Aaron’s Co., the consensus estimates for its profit appear to be overly conservative, leading Stephens to predict that the company will benefit from lower-than-expected operating expenses. Even if this calculation is wrong, Caintic believes that the stock price is currently undervalued considering the company’s strong cash-flow generation.
Following the upgrade, Aaron’s Co.’s stock rose by 4.7% on Tuesday.
Prog Holdings: A Safe Investment Choice
Prog Holdings is recognized as one of the safest and most conservatively underwritten companies in the market, according to industry experts. Their credit write-offs consistently remain within their guidance range, ensuring stability and security for investors. In line with this positive outlook, Prog Holdings’ stock experienced a 0.7% rise recently.
Upbound Group: A Promising Growth Play
Among the lease-to-own companies, Upbound Group emerges as a front-runner expected to report positive revenue in the upcoming fourth-quarter results. This success can be attributed to their ability to capture market share, particularly as higher-credit lenders tighten their underwriting policies. Additionally, Upbound’s regional retailer focus has enabled them to establish strong relationships with merchant partners. The market responded positively to this news, with Upbound Group’s stock price increasing by 1.1% on Tuesday.
America’s Car-Mart Inc.: Dealing with Macroeconomic Challenges
In light of prevailing macroeconomic headwinds, Stephens downgraded America’s Car-Mart Inc. from overweight to equal weight. The company faces challenges such as soaring car prices and stricter underwriting criteria, resulting in lower approval rates. Consequently, America’s Car-Mart’s stock witnessed a significant decline of 7% on Tuesday.
Navient Corp.: Rating Cut Due to Earnings Outlook
Stephens also made a rating adjustment by downgrading Navient Corp. from equal weight to underweight. This decision was influenced by their belief that analyst estimates are currently inflated by approximately 20%. While the company’s fundamentals remain strong, the combination of lower interest rates and the expiration of floor income contracts is expected to significantly dampen earnings in 2024. As a result, Navient’s stock experienced a decline of 2.7% on Tuesday.
Also read: American Express, Mastercard, Visa draw neutral rating as Monness Crespi Hardt initiates coverage