2 Big Winners Out of 3 Credit Card Stocks From Goldman Sachs

Discussing the company's ability to sustain "a $7 earnings run-rate," Nash said that "further clarity of a path to (and above) $7 of earnings should help drive shares higher. While almost 25% of core loans are in run-off, because those loans tend to be lower yielding (mortgages), any mix shift (into card, auto) should make the headwind manageable. We estimate COF will need 11% growth over the next 3-4 years to offset the headwind; we view this growth as manageable."

2013 will be a year of continuing transition for Capital One, which made two major acquisitions in 2012, that were delayed by very long approval processes by the Federal Reserve and the Office of the Comptroller of the Currency. The company in February completed its purchase of ING Direct (USA) from ING Groep (ING) for $6.3 billion in cash, plus 54 million Capital One shares, representing a 9.7% ownership stake. Capital One also completed a $1.25 billion common equity raise in March. Then in Then in May, Capital One purchased HSBC's (HBC) U.S. credit card portfolio for $2.5 billion.

The ING deal included roughly $80 billion in deposits gathered over the Internet, along with $41 billion in loans, providing plenty of liquidity for the $28.2 billion in credit card loans acquired from HSBC.

Capital One will report its fourth-quarter results on Thursday after the market close, with analysts polled by Thomson Reuters estimating the company will report earnings of $1.61 a share.

A further catalyst for Capital One's shares, according to Nash, is "upside from capital returns. While 2013 is a transition year, we see room for a meaningful increase in 2014 ($2 dividend and $2bn buyback)."

Capital One's shares closed at $61.99 Friday, trading for 8.8 times the consensus 2013 EPS estimate of $7.03. The consensus 2014 EPS estimate is $7.38.

American Express Downgraded

Nash Downgraded American Express to a "Neutral" rating from a "Buy" rating, while keeping his price target for the shares at $65, saying he saw "limited upside to out-year estimates (consensus of $4.75 in 2013) given the challenging revenue environment."

American Express is set to announce its fourth-quarter results on Thursday after the market close, however, the company last Thursday preannounced fourth-quarter earnings of 637 million, or 56 cents a share, declining from $1.250 billion, or $1.09 a share, in the third quarter, and $1.192 billion, or $1.01 a share, in the fourth quarter of 2012.

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