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American Express

(AXP) - Get American Express Company Report


Capital One Financial

(COF) - Get Capital One Financial Corporation Report


Discover Financial Services

(DFS) - Get Discover Financial Services Report

were all upgraded to neutral at Bank of America Merrill Lynch on expectations that credit losses at the card issuers will improve as the economy recovers.

Bank of America Merrill Lynch analyst Kenneth Bruch specifically pointed to a dip in the unemployment rate to 10% in November, according to data released on Friday, "which could serve as the fundamental inflection point that we have been waiting for," he wrote in a combined research note.

"An accelerating economic recovery should continue to encourage investors to view the sector more optimistically," Bruce writes in the note. "Despite our concerns about the pace of recovery and core fundamentals for the card companies, improving credit will likely to lead to positive estimate revisions and increasingly optimistic sentiment for credit-sensitive stocks."

Bruce raised his 12-month stock price target for American Express by $11 to $44; for Capital One by $11 to $41 and for Discover by $2 to $16.

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Shares of American Express and Capital One have nearly quadrupled since their March lows of $10.64 and $8.31, respectively. Discover shares have more than tripled since their March low of $4.89.

American Express' stock was moving 1.5% higher, Capital One shares were moving 0.9% higher, while Discover's stock jumped more than 3.2% in late morning trades.

"If the November unemployment rate print was in fact the inflection point for employment, then the credit backdrop will continue to improve for consumer lenders, despite the structural challenges that consumer balance sheets possess. Card losses may prove stubbornly high. However improving employment should provide some much needed relief for credit card companies that have witnessed unusually high delinquency migration rates.

Still Bruce remains cautious on American Express, Capital One and Discover. According to the note, Bruce is not ready to put a buy rating on the companies since they have already experienced "meaningful" share price improvement in anticipation of the improving fundamentals, he writes.

Also, the pace of economic recovery will be slow, "leading to heightened share price volatility as the economic data is noisy coming off the bottom of such a deep recession," Bruce writes in the note.

Last week

Goldman Sachs

made a bullish call on three consumer-heavy stocks -

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report


Bank of America

(BAC) - Get Bank of America Corp Report

and Capital One, saying losses for the consumer as well as commercial and industrial loans were better than it had previously expected.

--Written by Laurie Kulikowski in New York.