Shares of American Express Co., Discover Financial Services, and Capital One Financial Corp. rose Tuesday morning after Eric Wasserstrom, an analyst at UBS AG's securities unit, upgraded all three stocks.
Mr. Wasserstrom wrote in a research note that the near-term outlook for the consumer credit market remains murky, with increasing receivables in a weak economy serving as a potential indicator of weakening credit quality, but he upgraded the three issuers' shares to "neutral," from "sell," because of their price.
Since UBS downgraded all three stocks to "sell" in February, their prices have dropped sharply, he wrote. "We believe the valuations now largely reflect the difficult operating outlook."
Mr. Wasserstrom raised his price target for Amex by $4, to $45 a share, and his target for Capital One by $7, to $46. He did not change his $14 target for Discover.
He raised his full-year earnings forecasts by 15 cents for Amex, to $3.20 a share and by 10 cents for Discover, to $1.50. He cut his target for Capital One by 5 cents, to $4.95.
Higher unemployment and deterioration in auto loans makes Capital One "the stock with the most near-term downside risk because of continued credit weakness," Mr. Wasserstrom wrote.
He predicted that the weak economic climate would hold down earnings for the three companies though mid-2010.
By midmorning Amex shares had climbed 3.07% from Monday's close, to $38.83. Discover had climbed 2.89%, to $13.55, and Capital One had climbed 2.32%, to $38.89.