Ratings downgrade weaken American Express

The stock of American Express Company (NYSE: AXP) is trying to consolidate after recording a 12-month high of $75.20. The company had reported impressive third-quarter earnings that surpassed the analysts’ estimates.

Furthermore, the news of acquisition of mobile security company inAuth has raised expectations of another round of uptrend in the stock.

However, the FOMC meeting, scheduled on Wednesday, is expected to increase the volatility in the global financial markets. Along with that we anticipate a correction to set in the stock of American Express due to the reasons mentioned underneath.

For the Q3 2016, the New York-based company reported a decline in the revenue to $7.774 billion, from $8.193 billion in Q3 2015. The third-quarter earnings declined to $1.142 billion or $1.20 per share, from $1.266 billion or $1.24 per share in the similar quarter last year.

American Express

The Wall Street analysts anticipate the company to post Q4 earnings of $0.99 per share. During the third-quarter, American Express had reported earnings of $1.20 per share. So, on a sequential basis, the analysts are expecting a 20.16% drop in earnings in the current quarter. The credit card company had reported $1.23 per share in the similar period last year. Again, this means that the market is anticipating a 19.51% negative EPS growth in the current quarter.

Last Saturday, investment research firm Nomura reiterated its ‘Reduce’ rating on the stock of American Express. The firm has given a price target of $63. Likewise, Vetr has issued a ‘sell’ rating with a target of $57. In a research note issued to the clients, Zacks Investment Research has downgraded the stock from ‘buy’ to ‘hold’ rating.

According to Zacks analysts, American Express is facing severe competition from mastercard and Visa. Furthermore, higher loan loss provisions and the strong US dollar are also expected to eat into profits. The loss of Costco’s business is also expected to affect the bottom line of the company. Thus, we can anticipate a temporary decline in the stock of American Express.

The loss of momentum in the stock is revealed by the negative reading of the MACD indicator. The stock is also facing considerable resistance at 74. Thus, we can anticipate a minor correction in the stock in the days to come.

A binary trader should purchase a low option contract to benefit from the analysis. The trade is advisable only if the stock is trading above 73.50 in the equity market. Finally, the expiry date of the suggested binary trade should be on or around 21st of December.

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