American Express Co. (Amex) has been reaping the benefits of strong growth in millennial spending. However, one analyst is raising concerns about the company’s reliance on younger customer bases, speculating that it could backfire in the near future.
According to Piper Sandler analyst Kevin Barker, Amex has strategically invested in a customer segment with significant growth potential. While this approach seems logical, Barker warns that excessive spending from millennials, driven by stimulus funds and government subsidies, makes this demographic particularly vulnerable to spending cuts.
Barker recently downgraded Amex shares from neutral to underweight in a note to clients, citing overly optimistic expectations, a slowdown in the company’s growth, and potential negative consequences as federal student-loan payments resume. Additionally, he lowered his price target for Amex stock from $172 to $149.
Based on his survey findings, Barker has identified borrowers within the age range of 26 to 45, with incomes between $100,000 and $200,000, as unprepared for upcoming loan repayments. He anticipates a significant shift in spending habits among this group, which could further decelerate Amex’s already observed slowdown in spending. As a result, he believes achieving the company’s target of 10% revenue growth in 2024 and 2025 will become increasingly difficult.
Amex Faces Challenges Despite Optimism
Shares of American Express (Amex) experienced a dip of more than 1% during Monday’s premarket activity. This comes after the company’s second-quarter results were reported on Friday.
Despite executives at Amex expressing optimism about the state of the business, there were concerns raised by analysts regarding a slowdown in spending growth. Chief Executive Stephen Squeri remained confident in the company’s ability to achieve its long-term goals, including annual revenue growth of over 10% and mid-teens growth in earnings per share by 2024.
Squeri emphasized the company’s focus on fee-based products and premium customers. However, it is worth noting that Amex added to its reserves during the latest period. Chief Financial Officer Jeff Campbell expressed confidence in the company’s credit trends for this year and the next, citing strategic choices related to products, customer acquisition, and risk management.
Despite these positive factors, Amex shares experienced a nearly 4% decline following the earnings report. Analysts are concerned about the slowdown in spending growth, which may pose challenges to the company’s future performance. Investors are advised to carefully consider consumer lenders that have already factored in a potential slowdown in their estimates and valuations as an alternative investment option.