Among Consumer Lenders, Safety Counts

Although Household's valuation is also well below its historical average, Park said the stock lacks a near-term catalyst in the form of stabilizing credit losses or substantially faster loan growth.

"The risk profiles of its receivables and earnings have increased, even though the regulatory risks, the previous focus of investors, have abated," he said.

Last week Household said it would pay up to $484 million to settle allegations that it had engaged in predatory lending practices. Customers complained that the firm deceived them into accepting unfair loan terms, and despite the settlement, Household still faces potential class-action lawsuits in three states.

Still, Park said he is more concerned about the aforementioned increase in credit losses and he noted that higher revenue from securitizations has increased the volatility of future earnings growth.

Revenue contribution from asset securitization -- or the pooling and selling of loans -- saw a large increase in the third quarter worth around 9 cents a share. It's expected to remain at a high level because of the firm's attempts to diversify its funding and liquidity.

"We believe that the material reliance on securitization revenues is likely to be a drag on [the] relative valuation of Household shares during this transition period," he said.

Park cut his 2002 and 2003 earnings estimates on Household but increased MBNA's estimates for this year and next. Although an increase in personal bankruptcies remains a "key risk" to his projections, Park did note that underlying consumer credit quality trends are improving and said an industrywide tightening of underwriting standards should reduce the level of overall loan defaults "even if the economy does not improve rapidly."

Like other subprime lenders, Household's shares have been pummeled this year, falling 50%. The stock ended down 2.7% to $28.40 on Monday. MBNA, on the other hand, has held up better, with a decline of just 14% year to date. Shares closed up about 1.5% at $20.20.