Nomura Securities on U.S. Cards: Competition in the Cards - Taking Stock for 2012
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Nomura Securities on U.S. Cards: Competition in the Cards - Taking Stock for 2012
Nomura analyst, Brian Foran, said, "Card Credit Still Improving, Competition Tough but Manageable - Delinquency is still improving on a seasonally adjusted basis, providing a supportive backdrop for earnings and estimate revisions. The stocks have been stuck in the mud in part on a misread of seasonality. The good news: delinquency will be falling for most of 1H 2012. Competition in cards is also holding investors back. The concerns are legitimate, but: a) competition is no worse than other loans, plus cards have more cost of funds reduction offset; b) market share shifts from debit cards and home equity are underappreciated tailwinds; and c) expenses are counter-cyclical to credit."
"We continue to rate Capital One (NYSE: COF) and Discover (NYSE: DFS) Buy: We see neutral to positive estimate revisions even as the stocks trade at 7x earnings. Competition is high but has offsets. Unemployment insurance is a risk, but our analysis suggests it is not a game changer if it is not extended."
"Modest upward revisions post Discover 4Q: DFS’s 4Q pre-provision earnings came in slightly better than we forecast, and the company continues to shrink the share count via buybacks. These trends seem set to continue, and thus we revise our 2012E EPS from $3.30 to $3.40, and our 2013E EPS from $3.40 to $3.50."
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Nomura analyst, Brian Foran, said, "Card Credit Still Improving, Competition Tough but Manageable - Delinquency is still improving on a seasonally adjusted basis, providing a supportive backdrop for earnings and estimate revisions. The stocks have been stuck in the mud in part on a misread of seasonality. The good news: delinquency will be falling for most of 1H 2012. Competition in cards is also holding investors back. The concerns are legitimate, but: a) competition is no worse than other loans, plus cards have more cost of funds reduction offset; b) market share shifts from debit cards and home equity are underappreciated tailwinds; and c) expenses are counter-cyclical to credit."
"We continue to rate Capital One (NYSE: COF) and Discover (NYSE: DFS) Buy: We see neutral to positive estimate revisions even as the stocks trade at 7x earnings. Competition is high but has offsets. Unemployment insurance is a risk, but our analysis suggests it is not a game changer if it is not extended."
"Modest upward revisions post Discover 4Q: DFS’s 4Q pre-provision earnings came in slightly better than we forecast, and the company continues to shrink the share count via buybacks. These trends seem set to continue, and thus we revise our 2012E EPS from $3.30 to $3.40, and our 2013E EPS from $3.40 to $3.50."
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