UBS upgraded credit card companies American Express, Capital One Financial Corp and Discover Financial Services to “neutral” from “sell,” saying the stock valuations now largely reflect the difficult operating outlook, Reuters reports.
The brokerage says although the near-term catalysts remain mostly negative with AmEx and Capital One expected to increase their credit-loss outlook, the current valuations are generally consistent with these expectations.
UBS says it is too early to be more constructive on these stocks as the proposed regulatory and accounting changes could inhibit longer-term profitability.
“We believe COF remains the stock with the most near term downside risk because of continued credit weakness in the card portfolio reflecting higher unemployment, and more severe deterioration in the auto portfolio reflecting poor underwriting,” the brokerage says.
The brokerage cut its price target on the shares of American Express to $41 from $45 and on Capital One to $39 from $46. It maintained its price target of $14 on Discover Financial shares.
UBS cut its earnings estimates for Capital One to reflect the brokerage’s estimates for higher losses and limited capital return in 2009.
It raised estimates for American Express and Discover Financial, expecting wider net interest margins and greater cost cutting to partially offset credit weakness.