American Express's millennial-spending boom could cool amid student-debt repayments: analyst

By Emily Bary

Piper Sandler says recent survey work indicates borrows 'are not prepared' for resumption of student-loan payments

American Express Co. has ridden strong growth in millennial spending lately, but one analyst worries the company's exposure to younger customer bases will soon come back to bite it.

Amex (AXP) "has focused on investing in a customer with the greatest growth potential," Piper Sandler analyst Kevin Barker wrote Monday. "This strategy makes sense to us, but outsized spending from this generation due to stimulus dollars and government subsidies makes this age cohort most at-risk of spending cuts."

Read: American Express earnings show record spending as executive says the U.S. consumer 'just looks really strong'

He downgraded Amex shares to underweight from neutral in his latest note to clients, cautioning that expectations seem "too high" with the company's growth slowing and with Amex susceptible to negative impacts as federal student-loan payments resume. Barker also cut his price target to $149 from $172.

His recent survey work suggested borrowers, namely 26- to 45-year-olds with income in the $100,000 to $200,000 range "are not prepared for these repayments."

"We expect a sharp change in spending habits which ultimately will accelerate the slowdown in spending we have observed" so far this year and "make it increasingly difficult" for the company to meet its annual target of 10% revenue growth in 2024 and 2025.

Shares were off more than 1% in Monday's premarket action.

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Barker recommended that investors instead consider "consumer lenders already embedding a slowdown within estimates and/or valuation."

Executives at Amex were upbeat about the state of the business when the company reported second-quarter results Friday. Chief Executive Stephen Squeri said he felt "very good" about Amex's ability to hit its "long-term aspirations," including annual revenue growth upwards of 10% and mid-teens growth in earnings per share for 2024 onwards "in a steady-state macro environment."

He called out the company's fee-based products and focus on premium customers.

Though the company added to its reserves in the latest period, Chief Financial Officer Jeff Campbell added that Amex's choices around products, customer acquisition and risk management have him feeling good about the company's credit trends this year and into next year.

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Nonetheless, Amex shares sank nearly 4% Friday following the results, with analysts flagging a slowdown in spending growth.

-Emily Bary

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07-24-23 0924ET

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