Deutsche Bank upgrades credit card stocks to neutral on valuation

Tue. July 01, 2008; Posted: 07:27 AM

BOSTON, Jul 01, 2008 (Thomson Financial via COMTEX) -- DB | Quote | Chart | News | PowerRating -- American Express Co., Capital One Financial Corp. and Discover Financial Services were all upgraded Tuesday to neutral from sell at Deutsche Bank, which said that despite near-term downside risk, the valuations now largely reflect the difficult operating outlook.

"In general, consensus earnings have subsequently moved closer to our forecasts and valuation have compressed, in line with out expectations," Deutsche Bank said. "Similarly, over the past five months, the stocks have declined 28% on average versus an 8% decline in the S&P."

The broker said near-term catalysts remain mostly negative, however, particularly second-quarter credit guidance which is likely to result in additional reductions to consensus earnings-per-share and sustain compressed multiples.

Deutsche Bank said Capital One has the most near-term downside risk because of continued credit weakness in its card portfolio. As a result, the broker cut its 2008 earnings-per-share estimate to $4.95 from $5 and lowered its price target to $39 from $46. Analysts, on average, estimate full-year earnings at Capital One of $5.07 a share.

The firm raised its 2008 earnings-per-share estimates for American Express and Discover on additional cost cutting measures, bringing its estimate for American Express to $3.20 from $3.05 and for Discover to $1.50 from $1.40. Wall Street's average consensus is for 2008 earnings of $3.32 a share at American Express and for $1.52 a share at Discover.

Deutsche Bank lowered American Express' price target to $41 from $45 and maintained Discover's target of $14.

American Express shares closed Monday at $37.67, while Discover's shares finished the session at $13.17 and Capital One shares ended the day at $38.01. Greg Saulnier gs/pc

Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

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For full details on American Express Co (AXP) click here. American Express Co (AXP) has Short Term PowerRatings of 8. Details on American Express Co (AXP) Short Term PowerRatings is available at This Link.

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