Morgan Stanley ups Discover Financial
(Reuters) - Morgan Stanley upgraded Discover Financial Services (DFS.N: Quotazione) and said the credit-card firm would outperform rivals Capital One Financial (COF.N: Quotazione) and American Express (AXP.N: Quotazione) on benefits from moderate credit losses, leverage to lower interest rates, and strong liquidity.
Shares of Discover jumped as much as 9 percent while Amex and Capital One fell about 1 percent in early morning trade on Friday.
The investment bank raised its rating on the fourth-largest credit card network to "overweight" from "underweight" and expects the company to post 2008 results above consensus estimates.
Analyst Kenneth Posner said Capital One and Amex have taken on more credit and funding risk than they should have, adding that he expects these companies to miss 2008 consensus estimates. He rates both companies "underweight."
Posner expects shares of these companies to remain under pressure until investors can anticipate a turn in the credit cycle.
"We continue to think that Capital One's exposure to subprime cards and auto loans is a major risk factor," Posner said.
He believes Amex grew its credit card portfolio too quickly and will continue to suffer from disappointing loss rates.
"The housing market may pose further risk for Amex," Posner said in a note to clients.
UBS earlier this month downgraded Discover, Capital One and Amex based on its expectation of a consumer-led recession in the first half of 2008, triggering a fall in their share price and dragging the Dow Jones industrial average .DJI down. Continua...