DFS Discover Financial Services

Discover Financial Services (DFS) first quarter earnings were substantially ahead of the Zacks Consensus Estimate. The growth in the loan loss reserve release as well as gains from the payments business drove the credit card sales volumes.

In addition, higher consumer spending and merchant acceptance also contributed to the increase. Recently, Discover also completed the acquisition of Student Loan Corp., which further enhanced its already strong student loan portfolio. The company's extensive network, sound capital position and cost containment initiatives will help accentuate growth over the long term.

Our six-month target price of $29.00 equates to 10.9x our earnings estimate for 2011. Given the expected annual cash dividend of $0.08, this price target implies an expected total return of 20.4% over that period. This is consistent with our Outperform recommendation on the shares.
 
DISCOVER FIN SV (DFS): Free Stock Analysis Report
 
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