Synchrony Financial Is Goldman's Top Credit Card Pick Before Q1 Earnings

Synchrony Financial SYF is Goldman Sach's top credit card pick heading into first quarter earnings.

Goldman's Ryan Nash remains constructive on card stocks and cautious on the first quarter EPS.

"While 1Q EPS could be disappointing, the stocks have been worse than estimate revisions, implying the set-up could be favorable. Also, we believe the sell-side has become too negative on some names (SYF and COF mostly), which could provide good entry points," Nash wrote in a note.

Following are the thoughts of Goldman on the upcoming earnings of various credit card firms.

Synchrony Financial

"We believe an in-line 1Q will likely be "good enough" amid market concerns around consumer credit. For 1Q, we believe the pieces could differ vs. consensus as RSAs and expenses could come in lower, while provisions could be a tad bit above as reserves track loan growth."

"While shares have disappointed YTD (-8% despite stable estimates), we believe a solid 1Q, positive commentary around the pipeline for business wins, and commencing of capital returns in 2Q should allow for shares to re-rate higher."

Discover Financial Services DFS

"We see some risk to 1Q estimates for DFS as we are $0.02 below consensus, driven by higher expenses and provisions, and partially offset by a higher NIM. While we believe investor expectations likely already reflect this, shares historically haven't reacted well to a provision miss. That said, modestly improving loan growth, a more positive trajectory on NIM and a strong message on capital returns post 2016 submission should help shares."

Alliance Data Systems Corporation ADS

"While we are largely in-line with the Street on 1Q, we believe the key will be its outlook for 2016 guidance given the accelerated buyback and favorable FX rates. We think guidance could go from $17 constant currency ($16.75 reported) to $17.30 ($17.20 reported). Anything less would imply weaker than expected core business fundamentals, and would likely weigh on shares."

Capital One Financial Corp. COF

"Expectations have gotten too low. While we expect a 1Q miss we believe the Street is too negative. Reiterating its 2016/17 outlook of 1) ~4% NCOs in 2016 and "low 4s in 17), and 2) YoY efficiency improvement, should help the stock."

American Express Company AXP

"In-line quarter, although revenues could disappoint. AXP pre-announced 1Q16 at its March 10 investor day, limiting the potential downside. That said, it isn't clear to us that Street expectations have fully baked in its expected discount rate pressure (calling for 6-7bps in 1H). While shares have been strong since its investor day, a top-line miss likely would not be well received. That said, FX rates have improved recently which should help."

The following table shows the Goldman estimates of revenue and EPS fares with consensus expectations: