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Merrill Cuts American Express

Cites a 41% runup over the last month and weakness in key markets.
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Shares of financial services giant

American Express

(AXP) - Get American Express Company Report

were under pressure Tuesday after Merrill Lynch lowered its investment rating on the stock to neutral from buy, citing its valuation and overall weakness in the economy.

"Our underlying economic assumption is for a muddling economy into 2003, with slow growth of both consumer and corporate spending," wrote analyst Michael Hughes in a research note. "We believe the market in particular needs evidence of greater strength in corporate and travel spending, which are key revenue drivers, and preferably a rebound in consumer spending from what appears to be a dip at present."

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Merrill noted that American Express, a


component, is trading at a 98% relative P/E to the market based on 2003 earnings forecasts, compared with the firm's objective of a market multiple on 2003 earnings. The stock is up more than 41% since hitting a 52-week low of $26.55 on Oct. 7.

"Once corporate and travel spending do pick up, we expect American Express' earnings growth -- and the stock's valuation -- to quickly accelerate as a result of the company's strong efforts during the last 18 months to reduce and streamline its cost structure," Hughes wrote.

The shares were recently down 58 cents, or 1.6%, at $36.92 on the

New York Stock Exchange.