This Day On The Street
Continue to site right-arrow
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
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Credit Card Stocks are Hot Again: Goldman Sachs

Stocks in this article: DFSAXPCOF

NEW YORK ( TheStreet) -- Goldman Sachs on Friday upgraded its rating for Discover Financial (DFS) to a "Buy" from a neutral rating, and upgraded the credit card sector to "Attractive" from "Neutral."

Discover on Wednesday reported net income of $624 million, or $1.18 a share, for its fiscal first quarter ended Feb. 29, increasing from $459 million, or 84 cents a share, a year earlier, and blowing past the consensus EPS estimate of 94 cents, among analysts polled by Thomson Reuters.

Discover's earnings beat was fed by a $226 million release of loan loss reserves, but the company also saw revenue net of interest expenses increases 6% year-over-year, with total loans growing 9% from a year earlier, to $56.3 billion, as of Feb. 29.

During the company's investor day presentation on Thursday, Discover's executives targeted annual earnings growth in a range of 10% to 15%, with a target return on equity of over 15%.

Following the completion of this year's Federal Reserve stress tests, Discover announced a $2 billion share repurchase authorization, while leaving its quarterly dividend unchanged, at 10 cents a share.

Discover's shares returned 35% year-to-date, through Thursday's close at $32.49. The shares trade for just over twice the company's reported Feb. 29 tangible book value of $15.82, and for just under nine times the consensus 20123 EPS estimate of $3.68.

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

Get Adobe Flash player

Goldman Sachs analyst Ryan Nash on Friday upgraded his firm's rating for the entire credit card space to "Attractive," from "Neutral," saying he saw further upside, as "we believe credit losses will stay lower for longer, driving EPS estimates higher," and that following the stress tests, "excess capital remains underappreciated." Nash also said that "low rates should push cost of funds lower and support margins."

The analyst also said that credit card lenders were trading at relatively low multiples to forward earnings, "at just 9.6x 2013 EPS vs. 12.4x for financials."

Nash upgraded his rating for Discover to a "Buy," from a neutral rating, while raising his price target for the shares by 8% to $39, while raising his fiscal 2012 earnings estimate to $4.05 a share from $3.60, and his 2013 EPS estimate to $3.90 from $3.55.

Nash added that after Discover completes its $2 billion buyback, "we still see $3bn of excess capital which the market is ascribing minimal value to at this point."

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

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,814.94 -2.96 -0.02%
S&P 500 2,067.03 -2.38 -0.12%
NASDAQ 4,758.2520 +3.36 0.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs