American Express raised an upgrade to equal weight from underweight at Stevens on Tuesday as analysts weighed the potential impact of an expected drop in interest rates in 2024.
After issuing a webcast earnings warning in December, American Express Co. AXP,
The company appears poised to return to its historical revenue and earnings per share growth in 2025, said analyst Vincent Kinetic.
In addition, lower interest rates “have a slight benefit” to American Express due to better financing costs for credit card receivables without yield impacts.
Furthermore, most of the revenue earned by American Express is based on fees, and therefore does not decrease due to lower prices.
“We remain concerned about Amex's relative credit performance, but we believe interest rates will likely benefit our superprime customers more,” Kintic said.
American Express stock fell 0.2% on Tuesday.
Stevens also upgraded the lease for his Aaron's Co. businesses. AAN,
Brug Holding Company
and Upbound Group Inc. UPBD,
To increase the weight of equal weight on their improved prospects in a low interest rate environment.
Stevens said analysts' consensus estimates for Aaron's earnings appear very conservative. The company will get a boost from lower-than-expected operating expenses, and even if that calculation is wrong, the stock price looks “incredibly cheap” relative to the company's cash flow generation, Kinetic said.
Aaron's stock rose 4.7% on Tuesday.
As for Prog Holdings, the company stands out as “the safest and most conservative company in the group, with credit write-downs remaining within its guidance range,” Kinetic said.
Prog Holdings shares rose 0.7%.
Meanwhile, Upbound Group ranks as the first of the rent-to-own companies that Stevens expects to report positive revenues in its upcoming fourth-quarter results as a “growth play” for the group, he said.
“In addition to capturing market share as high-credit lenders tighten underwriting, Upbound has had greater success winning merchant partners through its focus on regional retailers,” Kinetic said.
Upbound Group's stock price rose 1.1% on Tuesday.
Stevens also downgraded Car-Mart Inc. American CRMT,
to an equal weight of overweight in the face of macroeconomic headwinds from rising auto prices and tightening underwriting requirements that will likely lead to lower approval rates.
US stock Car-Mart fell 7% on Tuesday.
Stevens also cut Navient Corp. NAVI,
It is rated Underweight from Equal Weight based on its conclusion that analyst estimates remain approximately 20% higher than they should be.
“Fundamentally we think business is doing well, although the combination of low interest rates and the expiration of minimum income contracts will significantly reduce 2024 earnings,” Kinetic said.
Navient stock fell 2.7% on Tuesday.
Read also: American Express, Mastercard and Visa received a neutral rating with Monness Crespi Hardt initiating coverage
