Avoid Credit Card Stocks? BofA Downgrades Visa, Mastercard, Capital One And Discover

In a new report, Bank of America analyst Kenneth Bruce has downgraded Visa Inc V, Mastercard Inc MA, Capital One Financial Corp. COF and Discover Financial Services DFS from Buy to Neutral due to the uncertain earnings outlook in the U.S.

According to Bruce, each of these stocks should continue to deliver mid-to-high single digit upside in the short-term.

He explains that the combination of a weaker U.S. economy and higher market volatility will continue to weigh on financial services stocks. “The combination drives poor earnings visibility and likely constrained valuation, which we think can’t be ignored,” Bruce adds.

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Although he predicts that the U.S. economy could be cooling off, he notes that Bank of America stops short of predicting a recession in 2016.

With stocks in the space already down 10-50 percent this year, the firm is maintaining Buy ratings on Synchrony Financial SYF, Ally Financial Inc ALLY and OneMain Holdings Inc OMF because it sees each of the three names as oversold at this point.

Bruce notes that Discover and Santander Consumer USA Holdings Inc SC have the most potential EPS risk in the near-term, though he reiterates that the stocks are cheap and also have significant upside.

Disclosure: the author holds no position in the stocks mentioned.