A higher-income customer base should position American Express well to ride out a year forecast to see a strong increase in delinquency, Morgan Stanley said. Analyst Betsy Graseck updated the shares of the issuer of payment cards to weight of equal weight, said credit losses pose less of a risk given the company’s higher credit score customers. “AXP has lower credit risk with higher FICO card members (5% subprime vs. peer median ~20%), and we see credit losses only up to pre-COVID levels in 2024 when all other card members will overshoot due to broken,” he said in a note to clients Wednesday. The upgrade from Morgan Stanley comes after the credit card issuer surged last month after issuing strong guidance and raising dividends, despite weaker than expected fourth quarter results. So far this year, the stock is up 21%. AXP YTD mountain Shares of American Express from the beginning of 2023 Graseck also expects more than 15% revenue growth for the company in 2023 as the company’s spending recovers, card fees increase, the US dollar weakens and consumer-income continues to spend more despite inflation. “Amex card members have little pressure from inflation against their faster-destroying stock counterparts,” he said. Moderate marketing and non-card operating expenses should provide approximately 400 basis points (4%) of positive operating leverage for the company going forward, the largest for the company in more than a decade. It also positions the company as “the only positive operating impact and EPS growth story” in the company’s range through 2024, he noted. Given this background, Graseck says American Express stock warrants a value premium to its peers. He raised the company’s price target to $186 per share, representing a 4% upside from Tuesday’s close and a price-to-earnings ratio of 16.5. On a similar note, Morgan Stanley lowered shares of Discover Financial Services to an equal weight from an overweight rating, citing the credit card company’s post-earnings performance. According to Graseck, “the capital return story has been fully digested by the market.” The stock is up more than 20% in 2023. “When the increase in credit losses is less of a risk for DFS vs. other subprime exposed less, in our findings, this pressure but the weight in EPS growth in 2023, is expected to decline 12% y/ yes,” he said. “We prefer a positive earnings growth story from AXP, expecting 15% EPS growth in 2023.” – CNBC’s Michael Bloom contributed reporting