By Piper Sandler analyst, Kevin Barker, has downgraded shares of American Express (ticker: AXP) from Neutral to Underweight. Barker expressed concerns about the potential negative impact of the resumption of student loan repayments on the card issuer. As student debt repayments are set to resume this fall, Barker expects a slowdown in spending from younger individuals who will need to budget their monthly loan payments.
Impact on American Express
According to Barker, millennials now make up 30% of American Express’ customer base, compared to 19% in 2019. The company has strategically invested in this customer segment, which has the most significant growth potential. However, with the excess spending from this generation due to stimulus dollars and government subsidies, they are now at the highest risk of spending cuts.
Supreme Court Ruling and Loan Repayments
The Supreme Court recently rejected the Biden administration’s plan to forgive a substantial amount of student debt. As a result, approximately 43 million borrowers with a total of $1.7 trillion in student debt will start their repayments in October.
Expected Impact on Revenue Growth
Barker predicts that American Express will face headwinds on revenue growth and operating margins, which will ultimately impact their earnings in 2024.
American Express Response
American Express did not provide an immediate response to a request for comment. However, during their second-quarter earnings call, they confirmed that millennials and Gen Z consumers are the fastest-growing segment of their Card Member base, with a 21% increase in US billings for the quarter. The company also increased its total provisions for credit losses to $1.2 billion, up significantly from $410 million during the same period last year.
Stock Performance
Shares of American Express experienced a 1.2% decline on Monday, trading at $1468.24. Despite this decline, the stock has risen by 14% this year. In midday trading, the S&P 500 was up by 0.5%.
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