In a recent report, Morgan Stanley analysts took an in-depth look at credit card giants American Express Company AXP 0.81% and Discover Financial Services DFS 1.26%. Analysts believe that both names offer excellent buying opportunities after their recent earnings sell-offs.
American Express
Analysts believe American Express’ miss on billed business growth in Q4 is nothing more than a temporary setback. The report includes a long list of reasons analysts predict that American Express will have a strong 2015, even in the face of foreign currency headwinds.
The list includes improving consumer confidence, increases in liquidity and valuations in housing and equity markets, higher merchant acceptance rates (via OptBlue) and in general, a retail sales rebound in the U.S, as the economy continues to strengthen.
Discover Financial
Analysts praise Discover’s best-in-class loan growth and innovative product offerings. They believe that initiatives like the “It” card, strong customer loyalty and new product launches this year provide plenty of upside to 2015 earnings guidance.
Analysts believe that the stock has traded down on credit concerns, but feel that current loan growth guidance for 2015 is conservative.
Outlook
American Express and Discover Financial are down 5 percent and 7 percent respectively since releasing Q4 earnings, and analysts believe that the punishment is overdone. Despite international weakness, analysts see plenty of domestic strength in 2015.
“While international spend likely faces continued FX headwinds in the near-term, acceleration of U.S. spend, helped by higher merchant penetration, should more than offset the temporary weakness.”
Morgan Stanley currently rates both stocks Overweight, and the report notes that American Express “is one of our highest conviction Overweights.”
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