This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Don't Ignore These Credit Card Stock Bargains

Stocks in this article: BAC AXP COF DFS

Discover's second-quarter ROTCE over the same 12-month period was an outstanding 26.4%.

The stock closed at $50.26 Thursday and traded for 10.0 times the consensus 2014 EPS estimate of $5.00. That's a lower forward P/E than Bank of America (BAC), for example, which achieved a marginal ROTCE of 4.67% for the 12-month period ended June 30. Bank of America's shares closed at $14.00 Thursday and traded for 10.3 times the consensus 2014 EPS estimate of $1.36.

Sakhrani estimates Discover on Oct. 21 will report third-quarter EPS of $1.17, declining from $1.20 the previous quarter and $1.23 a year earlier. The analyst rates Discover "outperform" with a $61 price target, and sees plenty of room for the company to increase its share buyback.

"We believe significant earnings generation and excess capital position of the company leave room for capital management activities greater than our current expectations. For 3Q13, we estimate DFS will repurchase about $350 million of shares (vs. $340 million in 2Q13) and will repurchase roughly $1.3 billion of shares in 2013," he wrote.

American Express (AXP) has also been showing growth, with average managed credit card receivables in August of $54.8 billion increasing at an annual pace of 4%. The company reported a second-quarter return on average equity of 23.6% for the first half of 2013, down from 26.6% a year earlier.

The shares closed at $74.02 Thursday and traded for 13.8 times the consensus 2014 EPS estimate of $5.35. This makes the shares rather pricey compared to Capital One and Discover, however, American Express has a long track record of bringing home double-digit returns on equity.

Sakhrani rates American Express a "buy" and estimates the company will report third-quarter earnings of $1.23 a share, compared to EPS of $1.27 the previous quarter and $1.09 a year earlier. His price target for the shares is $87.00.

The credit card lenders are worthy of consideration at this point in the banking industry's recovery because of their high degree of profitability and relatively low valuations. Some investors may be concerned about regulatory overhang, as the Consumer Financial Protection Bureau on Tuesday said it had several "areas of concern" for the credit card industry, including sales of add-on products, fees, and deferred interest on some private label cards.

However, the CFPB's concerns seem pretty tame when compared the onslaught the largest banks continue to face.

"Generally speaking, fundamental trends remain solid and we expect C3Q13 earnings season to be fairly constructive," for the credit card lenders and processors covered by his firm, Sakhrani wrote.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
2 of 2

Select the service that is right for you!

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 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • 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