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

The company announced it would eliminate 5,400 jobs, resulting in restructuring charges of $742 million, along with an additional $153 million in expenses for customer reimbursements, including "fees, interest and bonus rewards as well as an incremental expense related to the consent orders entered into with regulators last October."

The company reported total fourth-quarter revenue of $8.1 billion, meeting the consensus estimate.

Nash said "we see limited upside to out-year estimates (consensus of $4.75 in 2013) given the challenging revenue environment, and that "while growth from fee initiatives (targeting $3bn) and international expansion should help, we believe these are already included in consensus and upside to spend volumes seems unlikely in the near term."

The analyst went on to say that "any further upside would have to come from additional expense cuts (beyond what has just been announced)."

Goldman Sachs estimates that American Express will earn $4.80 a share in 2013. Nash lowered his 2014 by 10 cents to $5.30, "to reflect slower expected growth," which he expects to be in the range of 5% to 6% over the next two years.

Shares of American Express closed at $61.24 Friday, trading for 12.8 times the consensus 2013 EPS estimate of $4.77. The consensus 2014 EPS estimate is $5.27.

Discover Remains "Top Pick"

Nash said that Discover Financial remained his firm's top credit card pick, reiterating his "Buy" rating for the company, while raising his price target for the shares by $4 to $50.00. For its Nash estimates that Discover will earn $4.25 a share in fiscal 2013 (which ends on Nov. 29) and $4.40 a share in 2014.

The analyst raised his fiscal 2014 EPS estimate by 10 cents "to reflect better growth," and said that "our slightly below consensus 2013 and 2014 estimates merely represent our more conservative reserve building forecasts."

Nash said "we see a clear path to $4.25+ of EPS, as DFS drives best-in-class balance sheet growth and legacy credit costs stay lower for longer. Given DFS' excess capital position ($2.5bn) and robust capital generation (2.7% ROA expected in 2013), we see it as well positioned to return over 100% of its earnings in 2013 via repurchases and dividends."
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