UBS On Why It’s Soured On Amex

In the wake of poor earnings from payments giant American Express last week, the firm has gotten little love and even less sympathy for missing consensus.

[bctt tweet="Amex has gotten little love and even less sympathy for missing consensus."]

And Monday (Oct. 26), the stock got a downgrade from none other than UBS, which took the rating down to “sell" from “neutral.” The price target came down from $81 to $67. Shares closed the session at $74.19 on Monday, down 0.5 percent.

As reported last week, the company reported earnings per share of $1.24, which missed the Street by a full seven pennies and was lower than the $1.40 seen last year. The key driver of many a headline last week, and the UBS downgrade, was the breakup of the longstanding co-branded partnership between Amex and Costco. The revenue logged in the latest quarter was also below the Street at just under $8.2 billion.

In the UBS note that announced the downgrade Monday, as Seeking Alpha reported, UBS analyst Matthew Howlett said that the loss of Costco stood as an “emphatic punctuation mark” to the reasoning behind the downgrade. "We continue to see American Express’ closed-loop model as having lost some of its luster and meaningfulness to merchants as access to broad swaths of consumer data continue to transform the card space," the analyst said, also writing that "we believe a significant transformation is needed for the company to adapt to the evolving nature of the payment industry and its own closed-loop model, a transformation that could last several years … We simply do not see a clear path to strong earnings growth even after the Costco dust has settled."

As further evidence of Amex’s troubles, the UBS Evidence Lab survey of U.S. Costco members and Amex-Costco co-brand cardholders led Howlett to calculate an 8.1 percent loss in cardmembers, compared to a 2.5 percent tally previously, an 8 percent loss in network volume compared to 4.5 percent estimated before and an 18 percent loss in the company’s loan portfolio.

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