Shares of American Express plunged Friday after the credit-card lender warned that fourth-quarter earnings will fall and a slowing U.S. economy will hamper profit in 2008.
After trading closed Thursday, American Express said it expects to report fourth-quarter earnings between 70 cents and 72 cents per share, lower than in 2006. Analysts were expecting 87 cents per share, according to Thomson Financial.
The company also said it would set aside $440 million in the period to cover loans that it expects won't be repaid as consumers struggle with higher energy and food prices and housing prices continue to fall across the country.
JPMorgan analyst George Sacco said the size of the reserve was unexpected, but overall not an alarming development given the pressures on consumers.
He cut his 2008 earnings estimate by 30 cents per share to reflect an expected slowdown in billing growth and higher charge offs to cover bad loans.
Sacco maintained his "Overweight" rating "to reflect our view that the company has a higher quality earnings stream and less credit risk than other names in our coverage."
American Express has a wealthier client base and higher percentage of corporate customers than rivals Visa and Mastercard.
Citi Investment Research analyst Bradley Ball cut his 2008 profit estimate for the company, noting, "American Express has a strong franchise that is not immune to economic pressures."
He maintained a "Buy" rating on the stock, saying the company is positioned to withstand a slowdown in consumer spending and economic recession. "We believe American Express has offsets in better operating expense controls and lower marketing spending," he said.