It’s time to get more optimistic on a pair of credit card stocks and pull back on a payment one, according to
BofA
Securities analysts.
Analysts led by Mihir Bhatia upgraded
Capital One Financial
and
Discover Financial Services
to Buy from Neutral, lifted estimates for each, and raised price targets to $129 from $112 and to $116 from $94, respectively, in a report titled ‘Hello, Soft Landing.’
Capital One shares slid 0.1% to $115.24, while Discover stock jumped 2.9% to $101.91 in Wednesday trading.
The analysts said they believe it is the latter stages of the current credit cycle, with losses expected to peak in the second half of 2024. “Historically, stock prices/company valuations appreciate meaningfully as peak delinquencies come into view,” they said.
They noted that this could happen over the next three to six months, adding that their view on consumer credit performance next year is prompted by a better-than-expected macro outlook and company specific factors.
“To be clear, we think credit losses will be higher in 2024 (vs. 2023) and these higher losses are incorporated in our forecasts,” BofA wrote.
On Capital One, analysts said recent delinquency trends are approaching typical seasonal patterns, which indicates post-Covid deterioration is wrapping up. Shifting over to Discover, BofA said the stock stands to benefit from the appointment of a permanent chief executive officer and the resumption of share buybacks.
The firm, however, is less optimistic about
PayPal Holdings.
“We don’t think PYPL is broken, but it will take time to fix,” analysts led by Jason Kupferberg wrote in a separate report Wednesday downgrading shares to Neutral from Buy and slashing their price target on the payment stock to $66 from $77.
PayPal
stock was up 3.6% to $59.94.
Through Tuesday’s close, shares have bounced 12% since the company turned in better-than-expected third-quarter earnings on Nov. 1, but BofA is still tentative. The analysts see 2024 as a transition year for PayPal, as new leadership builds its reputation with Wall Street and aims to focus on boosting transaction profit growth, “which faltered under prior management.”
Earlier this week, BMO Capital Markets analyst Rufus Hone was similarly cautious, assuming coverage of PayPal at Market Perform with a $65 price target while taking over coverage of
Block
at Outperform.
Write to Emily Dattilo at [email protected]
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