Among the many businesses that were casualties of 2020 were credit cards, especially credit cards that were particularly close to the travel market. 2020 was not what anyone would call a great year for travel. American Express (NYSE:AXP) took a lot on the chin in 2020, but there are some exciting new points to recently emerge that suggest the company could be in for some substantial upward moves in the near-term.
Well, Maybe You Could Call it a Comeback
Easily the biggest development in American Express' favor emerged when JPMorgan Chase—via analyst Richard Shane—gave American Express a double upgrade, taking it straight from “underweight” to “overweight” in one fell swoop. Moreover, Shane hiked the price target in a big way as well, taking it from its current $105 to a new $148.
That's a lot of forward momentum in one jump, so what's driving that manner of optimism? Shane looks for a curious development to happen early this year, sometime around the one year anniversary of the coronavirus lockdowns. Shane expects that American Express will actually be “lapping” the huge spending declines that hit back then, and that will light the fuse for American Express to go from “a top-line laggard” to “a top-line leader” starting around June.
Moreover, Shane also expects outside market forces to positively impact American Express' bottom line. Shane expects “pent-up demand” from leisure travel to spark up with the second half of 2021, a development that may sound ludicrous on the outside, but actually has some support. With the stock down 7.1% for the last 12 months, but up 19.2% on the last three months, the notion that American Express could be in a recovery pattern isn't really out of line.
Analysts Gradually Coming Around
While JPMorgan Chase is definitely taking the bullish approach here, the broader analyst pool—based on our latest research—is somewhat less convinced. Currently, the company has a consensus rating of “hold” on it, as it has for the last six months. However, the ratios comprising that rating have been steadily improving for the last three months. Six months ago, the company had three “sell” ratings, 11 “hold” and eight “buy.” That slipped a bit three months ago as two new “sell” ratings stepped in, bringing the total to five. A month ago, one “sell” departed, and one new “hold” and two new “buy” ratings stepped in. Today, the sellers are now down to just two, while 12 “hold” and 12 “buy” ratings round out the mix.
The price target has also been steadily improving since three months ago. Six months ago, the target sat at $107.09. That dropped to $104.78, but jumped to $112.04 last month. Today, it's $115.44, and that represents downside for the first time in six months as the company currently trades at $122.15.
A Tempered Buy Potential
So, looking at the numbers, it's easy to see where sentiment is swinging around in American Express' favor. The price target has been on the rise, and it's actually understating what American Express is doing right now. With quarterly earnings reports set to drop on Tuesday, the potential exists for the company to start something great with that and set up a win down the line.
From there, though, things get a bit dicey. The notion of “pent-up demand” for travel suddenly returning in the second half of 2021 seems a bit pie-in-the-sky from here. While there is something to be said for it—have you heard how many governors and mayors that were formerly in “lockdown forever” mode have suddenly swung around to “the cure can't be worse than the disease” lately?—it depends on a lot of things either changing or staying static for the next roughly five months. If 2020 taught us anything, it's that counting on anything to stay the same for six months at a clip is pretty much a forlorn hope.
Moreover, assume for a moment that JPMorgan's projections are on the money. Okay, great; this brings back American Express, sure, but it would also do the same for American Express' perennial rivals Mastercard (NYSE:MA) and Visa (NYSE:V). There wasn't much in JPMorgan's projections to detail how the perennial third-place that is American Express surges beyond those two kingpins, and the rising tide JPMorgan describes that would lift American Express' boat would have to lift Mastercard and Visa's boats as well.
Still, JPMorgan's projections would likely be welcome, especially in places where they've forgotten what it's like to eat indoors, let alone at a buffet. A bustling summer travel season would also be welcome. So with that in mind, American Express might indeed prove a good buy to take advantage of upcoming run-up in travel and spending accordingly
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