Analyst Richard B. Shane, from JPMorgan Chase, recently upgraded American Express Co. to overweight from neutral, citing the company's more affluent customer base as a possible "haven from deteriorating household balance sheets." As the economy prepares to potentially slow down for U.S. consumers, lower- and middle-income borrowers face the pressure of depleted savings from the pandemic and the lasting effects of high inflation.

In premarket trading on Thursday, American Express Co.'s stock rose by 0.7%. Among credit-card issuers, it stands out as JPMorgan's top pick for 2024.

Shane expressed confidence in American Express Co.'s business model, highlighting the company's strength in credit performance despite widespread white-collar layoffs in 2022/2023. However, he also acknowledged uncertainties that come with studying the mixed economic landscape of 2024.

The persistency of higher-income consumer spending and the trajectory of credit are key issues that Shane believes are important for American Express Co. in the near future.

Additionally, there is a potential risk related to a proposed increase in capital requirements being studied by federal banking regulators as part of the Basel III endgame. The outcome of this new regime may impact American Express Co.'s plans for dividends and stock buybacks for shareholders.

Also read: Morgan Stanley’s James Gorman predicts proposed capital requirements may be tempered

JPMorgan Chase Upgrades American Express

JPMorgan Chase recently upgraded American Express, marking the second ratings move on the company this week. This follows Stephens' upgrade of the stock to equal-weight from underweight, as analysts consider the potential impact of expected interest rate decreases in 2024.

Downgrades and Analyst Focus

On Thursday, JPMorgan also downgraded Capital One Financial Corp., lowering its rating from overweight to neutral. Additionally, Capital One was removed from its analyst focus list. According to Shane, this decision was made due to Capital One's higher exposure to non-prime borrowers and the belief that better risk/reward opportunities exist elsewhere.

JPMorgan made another downgrade, this time for SLM Corp, lowering its rating to neutral from overweight. The reason cited was that the company's financial outlook has already been fully incorporated into earnings estimates and stock valuation.

Furthermore, JPMorgan downgraded Rocket Cos, reducing its rating from neutral to underweight. Shane explained that this was due to the company's current valuation multiples, which reflect an optimistic scenario for its business. Although they believe Rocket Cos is a long-term winner in the mortgage sector, they consider the stock to be fully valued both absolutely and relative to its peers.

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