Wolfe Research downgrades AmEx, Discover, Capital One, Synchrony

Downgrades

Wolfe Research analyst Bill Carcache downgraded American Express Co. and Discover Financial Services to "peer perform" from "outperform" and Capital One Financial Corp. and Synchrony Financial to "underperform" from "peer perform."

The analyst also downgraded the whole credit card issuer group to "market underweight" from "market weight," saying credit card issuers with greater exposure to prime and super-prime credits are likely to come under further pressure amid a growing probability of recession, which he put at an 80% probability.

For American Express, the analyst modified his 2022 EPS estimate to $9.63 from $9.65 and 2023 estimate to $11.74 from $11.82. Carcache also lowered his 2023 EPS estimate for Capital One to $17.40 from $17.51 and his 2023 estimate for Synchrony to $5.36 from $5.46.

Carcache said the EPS estimate changes reflect slower-than-previously expected share buybacks based on his view that issuers are likely to hold additional capital to absorb current expected credit loss transition charges rather than cover them out of future earnings.

The analyst also lowered his price targets for American Express to $146 from $213; Discover to $97 from $136; Capital One to $86 from $131; and Synchrony to $22 from $38.