Oppenheimer analyst Meredith Whitney saw negative implications for overall U.S. spending over the next 12 to 18 months after credit card company American Express Co indicated credit deterioration among its most affluent customers.
"The wide-ranging effects of the housing downturn are highlighted by the worsening of U.S. cards' credit quality in AXP's affluent cardmember base," Whitney wrote in a note to clients after attending the investor day of American Express.
"Typically, the affluent segment holds up well during downturns, but home price declines have resulted in significant losses in consumer net worth (lower home values)," she added.
Whitney said while the company's non-discretionary spending growth held up well through the second quarter of 2008, discretionary spending growth was negative.
American Express noted that slower growth in discretionary spending was visible across all wallet sizes, she said.
"The sharp split between nondiscretionary and discretionary spending growth highlights reduced spending among consumers," Whitney said.
Whitney said the company's CEO Ken Chenault noted that the reengineering efforts announced with second-quarter results would likely result in a charge in the fourth quarter, and benefits will be visible in 2009.
"We maintain our view of AXP as the least worst of the group, as the company does not have mortgage exposure, has not lost money, has not raised capital, and we don't believe it needs to raise capital," Whitney added.
However, she said American Express is not immune to a rapidly deteriorating consumer credit environment.
She rates the company "perform."
Fox-Pitt, Kelton analyst Howard Shapiro said in a note that there was no near-term catalyst for the company, but views the stock as attractively priced compared with long-term growth prospects.
"AXP credit and spend metrics appear to have been disproportionately hurt by declining home values, geographic concentration and overall consumer stress," Shapiro, who maintained an "outperform" rating on the stock, said.
Shares of the company were down about 1 percent at $37.47 in morning trade on the New York Stock Exchange.
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