American Express is said to be in advanced talks to snap up SoftBank-backed lender Kabbage Inc. for as much as $850 million. Shares rose 3.4% to $105.13 in afternoon trading.
The all-cash deal could see AmEx (AXP), which is already the largest US provider of credit cards become an even bigger lender to mom and pop shops, according to a Bloomberg report. An agreement might be announced as soon as this month.
Kabbage, which is backed by investors including SoftBank’s Vision Fund and Reverence Capital Partners, was most recently valued at more than $1 billion after SoftBank invested $250 million into the lender in 2017. Still, the $850 million price tag would be in sharp contrast to the $90 million that Enova International agreed to pay for On Deck Capital last month.
At the outbreak of the coronavirus pandemic, Kabbage furloughed hundreds of workers and suspended customer credit lines as it contended with a slowdown in spending at small businesses nationwide. More recently, the Atlanta-based firm has focused on providing small businesses with loans from the US government’s Paycheck Protection Program.
Small businesses bounced back faster during the Covid-19 pandemic than other customers in AmEx’s broader card portfolio, and AmEx CEO Steve Squeri said last month that they were the “most resilient” through the crisis.
“Ninety days on now, we actually feel really good about the small-business portfolio,” Chief Financial Officer Jeff Campbell said last month, adding that a smaller percentage of balances in forbearance are tied to those loans. “Those numbers have come way down.”
AmEx has spent years building out its small-business card portfolio, creating new offerings with partners such as Amazon (AMZN). The company said last month that while it focuses on getting businesses such as nail salons and restaurants to accept its products, its card portfolio is more focused on professional services.
“Only 3% of our small-business customers are actually restaurants,” Squeri said. “The concentration of our small-business portfolio is professional services: legal, finance, insurance, real estate is about 14%, construction is about 10% and health care is about 5%.”
AmEx shares have dropped 16% this year as the credit card issuer’s revenue was hurt by a sharp drop in travel and entertainment (T&E) spending due to the COVID-19 restrictions. Looking ahead, the $102.28 average analyst price target implies 2.2% downside potential over the coming year.
Oppenheimer analyst Dominick Gabriele late last month reiterated a Buy rating on the stock with a $105 price target.
“AXP has a long track record of solid returns through the cycle. While there has clearly been a structural shift in the business, we think this has been almost fully reflected in the stock price/ multiple” Gabriele wrote in a note to investors. “We believe the cyclical backdrop has improved for AXP and that, as T&E spending ramps up, there will be billed business growth upside as the economy moves from mid- to late-cycle.”
Overall, Wall Street analysts are sidelined on the stock. The Hold consensus is made up of 11 recent Hold ratings, 3 Sell ratings versus 5 Buy ratings (See AXP stock analysis on TipRanks).
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