RBC Capital Markets’ analyst, Jon Arfstrom, believes that American Express Co. (Amex) has a favorable standing in the face of a more challenging regulatory environment for credit card companies. In light of this, Arfstrom has upgraded his rating on Amex shares to “outperform” from “sector perform”.
One key advantage that sets Amex apart, according to Arfstrom, is its lower reliance on late fees compared to its competitors. Additionally, Amex boasts a wealthy customer base, which further strengthens its position.
Arfstrom highlights the significance of Amex’s reduced dependence on late fees, as the Consumer Financial Protection Bureau (CFPB) is expected to tighten regulations in this area. The CFPB plans to implement fee caps for late payments, reducing the maximum fee from $30 to $8, for instance. Arfstrom predicts that the CFPB could finalize these changes by fall 2023 with a planned implementation in 2024.
Arfstrom acknowledges that the overall health of consumers is still stable but points out that inflation has led to some spending pressures. Moreover, delinquencies in the industry are increasing. In response, Arfstrom emphasizes that both Amex and Discover Financial Services have a larger proportion of “super prime and prime customers”, which will likely result in fewer losses compared to their peers throughout the economic cycle.
Conversely, Arfstrom downgraded his ratings for Synchrony Financial and Bread Financial Holdings Inc. He clarifies that although he still believes these companies are strong in the long run, he anticipates challenges in outperforming the market in 2023 due to the potential impact of the late-fee proposal. These companies will need to redirect their focus towards mitigating this impending earnings headwind.
As of Tuesday’s premarket trading, Amex shares were up by almost 1%, while Synchrony shares and Bread shares experienced declines of 1.6% and 1.9%, respectively.
In conclusion, American Express Co. appears to be in a favorable position to navigate the regulatory landscape, thanks to its reduced reliance on late fees and affluent customer base.
