Stock market analyst American Express signals the change in consumer behavior

It’s the sign every driver should heed: proceed with caution.

The words warn drivers to be cautious as they head down the road because they don’t know what’s around the next bend.

Related: Analysts reset price target on Home Depot shares following earnings

Proceed with caution is also the message from several companies, particularly in the travel and homebuilding sectors, as they see consumers slowing spending due to concerns about the economy and their budgets.

In a recent interview with TheStreet.com’s Conway Gittens, Jeffery Roach, chief economist for LPL Financial, cited several “leading indicators where you’re starting to see the beginnings of a slowdown.”

“This is not a massive recessive type of slowdown, but a slowdown nonetheless,” he said.

Take the case of Home Depot (HD) the largest home improvement retailer, for example.

While the Atlanta-based company beat Wall Street’s fiscal second-quarter earnings expectations, Chief Executive Ted Decker recently told analysts that higher interest rates and greater macroeconomic uncertainty “were weighing on consumer demand overall, which has led to weaker spending on housing improvement projects’.

Analyst revises price target on American Express stock.

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Home Depot CEO: Weather is also a factor

“Furthermore, we saw continued softness in spring projects, which were also affected by extreme weather changes throughout the quarter,” he added.

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Looking at performance in the first six months of the year, as well as continued uncertainty around underlying consumer demand, Decker said, “We believe a more cautious sales outlook for the year is warranted.”

Brandon Sink, Chief Financial Officer of Lowe’s (LOW) had similar concerns, telling analysts that “the home improvement fund remains challenging and consumer sentiment remains weak.”

“Mortgage rates are obviously going down,” he said. “We expect that to continue to decline as we move into 25. But we’re looking at consumer sentiment, existing home sales, housing affordability; these are still concerns. We continue to see pressure there.”

“Consumers continue to show a preference for services over goods, particularly in home improvement,” Sink said.

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In another sign of economic caution, Airbnb (ABNB) Co-founder and chief executive Brian Chesky said during the company’s earnings call that “we are seeing shorter delivery times globally in some signs of slowing demand from US guests, and our outlook for the third quarter incorporates these recent trends.” .

Chesky added that the company, an online marketplace for short- and long-term households, is “watching these trends closely, along with the impact any macroeconomic pressures may have.”

Ellie Mertz, Airbnb’s CFO, said: “Flexibility in longer delivery times, that’s a big factor in the prospects we’ve given them.”

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“Over the last couple of years, as we’ve come out of Covid, there have been a couple of periods where we’ve seen … some volatility in general delivery terms and, in particular, some reluctance on the part of consumers to book those longer journeys.” she said. “I guess that’s what we’re seeing now.”

Mertz added that “the bottom line in terms of the trends we’re seeing now is not that consumers won’t necessarily book that trip for Thanksgiving or Christmas; looks like they haven’t booked yet.”

And that brings us to American Express (AXP) which last month was slightly below Wall Street’s quarterly revenue expectations.

Analyst: Consumer spending ‘less than robust’

Stephen Squeri, the credit card giant’s chairman and CEO, said much of its consumer spending is discretionary.

“And for our consumer, if they decide they’re going to retire, they’re going to retire a little bit of discretion, but they’re going to continue to pay their bills, which is why our credit numbers continue to be so strong. , and we continue to widen the gap between us and our competitors,” he said during the company’s earnings call.

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“So we think the U.S. consumer has been pretty consistent and we think it’s going to be pretty consistent throughout the year,” Squeri said.

CFO Christophe Le Caillec said: “Although we are not in a high-growth spending environment, particularly in the US, our spending volumes are in line with our expectations and support our revenue expectations for the year.”

However, Bank of America Securities analyst Mihir Bhatia downgraded American Express on August 21 to neutral from buy with a price target of $263.

While the investment firm maintains a favorable view of AmEx’s longer-term execution and strategy, recent comments from retailers and travel companies suggest the spending environment is challenging.

B of A sees limited upside, given low billing volume growth and premium stock valuation, Bhatia said.

“US consumer spending trends and outlook are less than solid,” he wrote in a note to investors. “Every lodging company covered by B of A Lodging analyst Shaun Kelley cut their 2024 guidance (revenue per available room), in part due to weaker leisure travel.”

While Bhatia said American Express’ full-year revenue and earnings per share targets are still achievable, “we think it’s increasingly likely that AmEx will come in at the bottom of the range on the top line.”

“Reported billings growth was 5.5% and revenue growth was 8% in Q224,” he said. “Given the challenging environment, we believe bills are likely to remain within this range, weighing on near-term revenue growth.”

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