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Morgan Stanley is getting excited about American Express earnings slated for release later this week. Analyst Betsy Graseck named American Express her top pick in the space with an overweight rating. Her $188 price target implies shares could rise 7.2% from Monday’s close. “Our top pick is AXP, which we expect to continue benefitting from an ongoing T & E boom,” she said in a note to clients Tuesday, using an acronym for travel and expenses. “We look for management to at least indicate that they are very comfortable with their 2023 guide.” It’s a difficult landscape for these companies as economic tightening weighs on consumers. The bank cited recent data showing credit deterioration is accelerating, while delinquency rates have increased at their highest pace in more than a decade (though they have seen some stagnation in recent months). Meanwhile, payment rates slid for a fourth month in a row. American Express is the only card issuer to report full managed data for the final month during earnings, which starts for the group this week. Graseck has a median rating of in-line for the issuer stocks heading into the earnings season. Managed credit performance in June was slightly negative for American Express as net charge-offs were larger than expected for consumers despite a small loss than anticipated for small businesses. While average loan growth was still high, it slowed more than usual. Graseck’s estimate for second-quarter earnings per share is one cent above Wall Street consensus due to expectations of higher revenue from fees, though she noted the June loan growth could bite at that and potentially result in downside. Still, she said American Express is a good pick because of its high credit quality, robust revenue growth and positive operating leverage. Looking specifically at operating leverage, it could notch 430 basis points this year, which would be its highest in more than a decade. And the company could be one of the only with both positive operating leverage and growing earnings in 2023 and 2024, she said. American Express earnings are slated for release Friday before the bell. — CNBC’s Michael Bloom contributed to this report.
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