This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

3 Solid Credit Card Stocks With Up to 28% Upside (Update 2)

Updated with market close information.

NEW YORK ( TheStreet) -- With credit card master trust data indicating that card loan quality is trending better this year than he expected, KBW analyst Sanjay Sakhrani on Thursday reiterated his "Buy" ratings for Discover Financial Services (DFS - Get Report), Capital One (COF - Get Report) and the credit card gold standard, American Express (AXP - Get Report).

Sakhrani said that that based on January reports by the major credit card loan securitizers, "average industry charge-offs still remain in favorable territory as they continue to stay below normalized levels of roughly 5%."

The analyst added that "delinquency trends continued to be constructive, with the card issuers posting sequential movements that were in-line to better than typical seasonal trends seen in January," although loan balances declined during the month, "as expected."

During January, the average charge-off rate among the seven issuers detailed in KBW's report declined to 4.25%, improving from 4.36% in December and 6.69% in January 2011.

Major credit card players seeing continued improvement included American Express, with the lowest charge-off rate of 2.25% in January, improving from 2.28% in December, while World Financial Network -- a subsidiary of Alliance Data Systems (ADS - Get Report) -- had the highest charge-off rate of 6.07%, improving from 6.39% in December.

Bank of America (BAC - Get Report), saw its January credit card charge-off rate decline to 5.63% from 6.05% in December. Discover's charge-off rate declined to 2.75% in January, from 3.15% the previous month.

Major card securitizers seeing increased January charge-off rates included Capital One, with a 3.54% charge-off rate, compared to 3.43% in December; JPMorgan Chases's (JPM - Get Report) Chase Issuance Trust, with a charge-off rate of 4.25%, increasing from 4.11% in December; and Citigroup (C - Get Report) subsidiary Citibank, with a charge-off rate of 5.27%, increasing from 5.11% the previous month.

Discover's shares have returned 23% year-to-date, through Thursday's close at $29.58.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The shares trade for nine times the consensus fiscal 2012 earnings estimate of $3.36 a share, among analysts polled by Thomson Reuters.

The company reported a return on average equity (ROE) of 30% for its fiscal 2011, ended Nov. 30.

Sakrhani reiterated his "Outperform" rating for Discover, with a $32 price target, saying "sequential improvements in both charge-offs and delinquencies outperformed seasonal trends, with charge-offs improving by double the amount typically seen in January and delinquencies actually modestly declining relative to the typical 15-20 bps increase seen during the month.

Sakrhrani is ahead of the consensus, estimating that that Discover will earn 43.48 a share during fiscal 2012, although his $3.10 EPS estimate for fiscal 2013 is behind the consensus estimate of $3.37.

Interested in more on Discover Financial Services? See TheStreet Ratings' report card for this stock.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
ADS $252.40 -1.86%
AXP $74.00 -3.55%
BAC $15.58 -4.65%
C $50.94 -4.75%
COF $74.32 -4.41%

Markets

Chart of I:DJI
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASDAQ 4,636.1050 -140.4030 -2.94%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs