Are credit card stocks set for a comeback?
Several analysts think so!
In general, they expect credit card stocks to go up.
Why?
For one thing, the government’s new laws under the Durbin Amendment did not affect credit card merchant fees, as they did debit card fees. Also, as the economy picks up and consumer confidence grows, credit card usage should increase, causing the price of the stocks to rise.[1] How much they may go up is another question entirely.
Donald Fandetti, Citigroup’s specialty finance analyst, recently voiced his opinion, stating that this is one way for people to begin investing back into the financial sector of the stock market.
“We think the outlook for credit cards is good given the early signs of loan growth, coupled with good economic data,” Fandetti says.[2]
That doesn’t mean that these stocks aren’t risky, but they have a more comfortable risk level than bank stocks, which have more exposure in the mortgage and loan environment.
Note that Mr. Fandetti speaks of “early signs” of growth. On one end, you have an improving economy that might encourage loan growth and an increase in credit card spending. At the other end, as critics are quick to point out, you have debt levels in America that are growing faster than income. That could limit the potential gains for credit card stocks.
Citigroup’s top picks are Capital One and American Express. The latter has a target price of $60, up from the current $49 range.
“American Express does focus on the more affluent, and we’re seeing very strong data coming out of the more affluent segment,” Mr. Fandetti says.
Visa is also high on the list, with a projected income of 17% in 2012. Even though Capital One may have as much as a 20% loss for the year, it will also have the most to gain from any positive industry results. Discover is last on Citigroup’s list. [3]
Credit Suissse Research Analyst Moshe Orenbuch, who published the private report, “U.S. Credit Card – Charging Ahead in 2012; Competition Rising; Networks Better Positioned – Favor Visa” on Dec. 19, 2011,” also makes positive predictions for 2012, as follows: [4]
- Visa – With a target price of $110 (currently $100 range), it is due to have a projected 10% revenue growth in 2012.
- Mastercard – Orenbuch also likes this giving it an “outperform” rating and a target price of $430 (currently $339 range).
- CaptitalOne – Rating is neutral because of stiff competition, with a target price of $53 (currently $49).
- Discover – Has a neutral rating for the same reason, with a target of $30 (currently $26).
- American Express – Orenbuch disagrees completely with Fandetti, giving American Express an “underperform” designation with a target price of only $40 (currently $49 range).
Which analyst is right? Only the stock market itself will reveal that answer!
[1] http://seekingalpha.com/article/318860-5-credit-card-stocks-set-to-spring-higher
[2] http://www.cnbc.com/id/45958409/Put_Your_Financials_Bet_On_Credit_Cards_Analysts
[3] http://seekingalpha.com/article/318860-5-credit-card-stocks-set-to-spring-higher
[4] http://seekingalpha.com/article/315997-credit-suisse-s-5-best-credit-card-stocks-for-2012
