Nomura Upgrades American Express, Discover to “Buy,” Downgrades Capital One to “Neutral” (AXP, DFS, COF)

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Analysts at Nomura Securities on Tuesday offered some fresh opinions on credit card issuers American Express Company ( AXP ), Discover Financial Services ( DFS ), and Capital One Financial Corp. ( COF ).

AmEx Upgraded to "Buy"
The firm upgraded AXP from "Neutral" to "Buy," noting that fee-based initiatives can help drive earnings growth for the company. The analyst also set a $69 price target on the shares, suggesting an 18% upside to the stock's Monday closing price of $58.41.

A Nomura analyst commented, "Well positioned for growth as the pool of US card industry profits shrinks, AXP is evolving into a lower-risk, higher return business. We are bullish on fee-based initiatives expected to be a meaningful contributor of revenues by 2014. Expense management will likely drive the next wave of earnings growth. While not immune, we believe the company is better positioned for an economic slowdown vs financials peers. Trading at 11.8x our 2013 EPS estimate, we find the shares attractive. We believe a 14.0x multiple is appropriate given the company's spend-centric model (similar to payments companies) and a growing revenue contribution from lower-risk, higher-reward fee-based businesses. FY12E / 13E EPS $4.38 / $4.96 ahead of Street at $4.31 / $4.75, respectively."

Discover Now Also a "Buy"
Nomura Securities initiated coverage on DFS with a "Buy" rating and $41 price target, suggesting a 17% upside. The firm commented, "DFS has been one of the most successful stories within the consumer lending space in recent memory. We expect DFS's further outperformance to be fueled by a combination of the following: low-to-mid single-digit card loan growth, stable net interest margins, healthy student and personal loan growth, and share gain opportunities across its network businesses. Trading at 8.7x our 2013 EPS estimate, we find the shares attractive. We believe a 10.1x blended multiple is appropriate given market share gains in direct lending and a growing reliance on the company's payments business. FY12E / 13E EPS $4.32 / $4.05 ahead of Street at $4.13 / $4.03, respectively."

Capital One Cut to "Neutral"
Finally, Nomura cut its rating on COF from "Buy" to "Neutral," noting that portfolio runoff and sluggish loan growth will hold the shares down in coming quarters. The firms new price target of $54 suggests zero upside to the stock's Monday closing price of $54.23. The analyst noted that "Weak economic returns and dilution from past deals makes us cautious."

American Express shares rose 93 cents, or +1.6%, in premarket trading Tuesday, while Discover shares were mostly flat and Capital One shares posted small losses.

The Bottom Line
Shares of American Express ( AXP ) have a 1.37% dividend yield, based on last night's closing stock price of $58.41. The stock has technical support in the $53-$55 price area. The stock is trading near the all-time high price range of $61-$65 a share. Shares of Discover Financial Services ( DFS ) have a 1.14% dividend yield, based on last night's closing stock price of $35.01. The stock has technical support in the $31-$32 price area. The stock is trading near all-time highs. Shares of Capital One Financial ( COF ) have a .37% dividend yield, based on last night's closing stock price of $54.23. The stock has technical support in the $48-$50 price area. If the shares can firm up, we see overhead resistance around the $65-$67 price levels.

American Express Company ( AXP ), Discover Financial ( DFS ), and Capital One Financial Corp. ( COF ) are all currently rated "Neutral" by Dividend.com.

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Stocks

Referenced Stocks: AXP , COF , DFS

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