While the Dow Jones Industrial Average (^DJI -1.71%) spent some of the morning in the red, the index was up about 0.55% by 12:50 p.m. EDT Monday. That rise was despite surging cases of the novel coronavirus in hotspots like Florida and Texas, as well as the worst showing for sales of previously owned homes in May since 2010.
Shares of Walmart (WMT -1.93%) were able to ride the market higher on Monday thanks to an analyst upgrade prompted by the mega-retailer's e-commerce potential. Meanwhile, American Express (AXP -2.09%) stock sank following an analyst downgrade related to weak travel spending.
Walmart snags an upgrade
Many retailers have struggled over the past few months as the pandemic and stay-at-home orders have closed stores and reduced consumer demand, but Walmart is having a moment. In the first quarter, which ended in March, the company booked a 10% rise in U.S. comparable sales and a 74% increase in e-commerce sales. That e-commerce strength was broad-based, with solid performances from Walmart.com, the third-party marketplace business, and online grocery delivery and pickup.
While the panic buying and hoarding behavior of consumers in the early days of the pandemic has passed, Walmart is well positioned to further grow its e-commerce business. The pandemic likely led some consumers to try Walmart's various e-commerce offerings for the first time, particularly the online grocery services. With the virus surging again in many U.S. states, Walmart could continue to pick up additional e-commerce market share.
This potential for e-commerce gains led analysts at UBS to upgrade Walmart stock on Monday. UBS now rates Walmart a buy, up from a previous neutral rating, attaching a $135 price target. On top of the e-commerce angle, UBS sees opportunities for Walmart in healthcare and in India.
Shares of Walmart were up about 1.3% by early Monday afternoon. The stock is up about 9% over the past year.
American Express hit by downgrade
On the same day that UBS upgraded Walmart on its e-commerce business, the investment bank downgraded American Express on worries over travel and entertainment spending. With these industries in uncharted waters as the global economy attempts to recover from the ongoing pandemic, UBS sees some risks for American Express.
UBS believes that travel and entertainment spending for wealthy customers won't be returning to pre-pandemic levels in the near term. That raises the prospect that American Express will need to make significant changes to its product offerings to maintain its value proposition for consumers. These worries led UBS to downgrade American Express stock from neutral to sell.
American Express faces the dual risks of lower spending on its cards and increased delinquency. The company booked $2.6 billion of loss provisions in the first quarter, up from just $809 million in the prior-year period. The increase was largely due to a weakening global macroeconomic environment, which prompted the company to build its reserves in anticipation of credit losses ahead.
With cases of the virus surging in various places around the world, and with the prospect of a second wave of the virus later this year, demand for travel may remain depressed for quite some time. Shares of American Express were down about 1% by early afternoon, bringing the stock roughly 28% below its 52-week high.