Shares of American Express Co. were up more than 5% on Friday after Baird turned bullish on the credit-card giant, along with Capital One Financial Corp., Fifth Third Bancorp FITB, +2.26%, and M&T Bank Corp. MTB, +1.49%
“Although we expect credit to normalize for COF COF, +5.61% and AXP AXP, +5.55%, the market seems to be pricing this in,” Baird analyst David George wrote. “In addition, loan growth trends are solid, both COF and AXP are well positioned to continue generating capital, and management can likely pull back on marketing if needed.”
He acknowledged that shares of the four companies he upgraded have come under pressure recently amid macro concerns, but he sees the fears as “more than priced into these stocks,” which are trading at 15% to 20% discounts on the basis of metrics like pre-provision net revenue and price-to-earnings.
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“From a credit perspective, the consumer will clearly feel the effects of higher inflation, and we think the excessive low-rate period has led to considerable misallocations of capital which will likely lead to some normalization in credit costs over coming quarters,” he wrote. “However, we believe the major misallocations of capital have been centered in equity capital, not in bank debt.”
He added that “[i]n 2006, the lending excesses were clear,” whereas now, “[t]here are no meaningful lending excesses…which will likely mitigate significant bank credit losses.”
Amex’s stock is leading the Dow Jones Industrial Average DJIA, +0.10% gainers toward the end of Friday’s session. The card company’s shares have lost 20% over the past three months as the Dow has dropped about 12%.