NEW YORK (TheStreet) -- Capital One (COF) is unique among credit card lenders, in that the company's stock is undervalued, according to UBS analyst Matthew Howlett.

Howlett on Tuesday initiated his firm's coverage of credit card lenders, writing in a note to clients that "The group appears to be fully valued on a P/E basis." The analyst assigned neutral ratings to American Express (AXP) and Discover Financial Services (DFS), but rates Capital One a "buy," with a price target of $87, implying 17% upside from Monday's closing price of $76.37.

Capital One's shares trade for 1.7 times tangible book value, according to Thomson Reuters Bank Insight, and for 10.3 times the consensus 2015 earnings estimate of $7.40 a share.  The consensus 2014 EPS estimate is $6.95. That forward price-to-earnings ratio is one of the cheapest among large-cap U.S. banks, as discussed in TheStreet's earnings preview for regional banks.

In comparison, shares of American Express closed at $86.99 Monday and traded for 14.4 times its consensus 2015 EPS estimate of $6.04, while Discover closed at $53.66 and traded for 9.9 times its consensus 2015 EPS estimate of $5.41.

The relatively high forward P/E valuation for American Express reflects the company's consistent track record for strong earnings.  The lender reported a return on equity (ROE) of 24.3% for the first three quarters of 2013, down from 26.3% from a year earlier.

Discover's forward P/E ratio is quite low, and the company reported an ROE of 23% for the first three quarters of 2013, down from 27% a year earlier.

Howlett went with a neutral rating for Discover, despite the low valuation and high ROE, because concerns over the company's strategy.  "We believe that management's stated emphasis on targeting consumers who will carry loan balances rather than focusing on transaction volume will result in greater credit risk. We are further encouraged to remain on the side-lines by Discover's recently initiated foray into home equity loans," he wrote.

Capital One's stock valuation is "above its immediate post-Crisis levels but below levels at which it traded before the crisis."  The stock's valuation has dragged most other large-cap banks, as the company digested two large acquisitions during 2012, including ING Direct (USA) and HSBC's (HSBC) U.S. credit card portfolio. 

Capital One in September sold its $6 billion portfolio of Best Buy credit card loans to Citigroup (C).  The company's average U.S. credit card balances held for investment declined 13% year-over-year to $69.9 billion in the third quarter.

December numbers won't be available until Wednesday, however, Capital One reported last month that its average domestic credit card loans held for investment grew to $69.7 billion in November from $69.5 billion in October.  The November number is a slight decline from September, but the company may have turned the corner to resume growing its card portfolio.

Capital One's return on average tangible common equity during the first three quarters of 2013 was 17.02%, according to Thomson Reuters Bank Insight.

"[U]nlike both American Express and Discover, we believe there is modest room for multiple improvement with Capital One, as it better demonstrates its ability to execute on its ventures into home, auto, and commercial loans without taking on significant credit risk," Howlett wrote.

Capital One will announce its fourth-quarter results on Thursday.  Analysts expect the company to report EPS of $1.55, down from $1.86 in the third quarter, but up from $1.42 during the fourth quarter of 2012.

This chart shows the performance of Capital One's stock against the KBW Bank Index and the S&P 500 since the end of 2011: 

COF Chart data by YCharts

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.