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American Express can surge 22% as company sales remain strong, analyst says

Key Points
  • Analyst Betsy Graseck upgraded American Express to overweight from equal weight. Graseck also hiked her price target on the stock.
  • The analyst cites a strong consumer business and a growing commercial segment as two of the catalysts to drive American Express higher.
The American Express Co. application is displayed in the App Store on an Apple Inc. iPhone in an arranged photograph taken in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images

Investors should buy shares of American Express as the credit card company's sales will keep growing at a fast pace thanks to a strong consumer, an analyst at Morgan Stanley said Thursday.

Analyst Betsy Graseck upgraded American Express to overweight from equal weight. Graseck also hiked her price target on the stock to $140 per share from $123, implying a 22.8% upside from Monday's close.

The stock closed 1.6% higher at $115.88.

"We believe the strong revenue growth story at AXP remains intact," said Graseck, noting she expects revenue to grow by 8% in 2019 and 10% in 2020. That's up from 7% in both years. The analyst's call hinges on several key drivers, including strong consumer deliveries.

"Consumer delivers the largest and fastest growing revenue pool at Amex, at 53% of total revenue pie and 12% revenue growth y/y," Graseck. "We expect Amex can continue this strong, above industry-average pace on 1) record growth in proprietary cards of 12 million, up 13% y/y; 2) strong contribution from Millennials, which are almost half of all new accounts; and 3) fee-based products driving ~2/3 of new accounts, as clients are confirming the value of the Amex brand."

American Express posted a mixed quarterly report earlier this month. The Dow Jones Industrial Average member reported adjusted earnings per share that were above expectations, but its overall revenue disappointed analysts.

The company's stock is performing well this year, rising 19.6% through Wednesday's close. By comparison, the 30-stock Dow is up 14%.

Still, American Express can go even higher as its commercial business continues to grow while maintaining the lowest credit card loss rate in the industry.

"AXP is driving robust top-line growth from a combination of strong loan and transactional growth," Graseck said. "Most of the growth today is coming from the Consumer business. But over the next several years, investors need to be focused on the Commercial payments opportunity set, particularly as [business-to-business] becomes increasingly digital. We believe AXP is well positioned in the Commercial payments ecosystem to take advantage of this trend."

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—CNBC's Michael Bloom contributed to this report.