Tuesday, Jefferies has increased the price target for Discover Financial Services (NYSE: NYSE:DFS) shares to $150.00 from the previous target of $145.00, while maintaining a "Buy" rating on the stock.
This adjustment comes as the financial services company demonstrates a strong year-over-year receivables growth and aligns with consensus expectations on several financial metrics.
The firm anticipates an 8.2% year-over-year growth in receivables for Discover Financial, based on trust data available through May and typical seasonal patterns. Additionally, the provision forecast of $1.66 billion is in line with the general consensus. The analyst also expects operating expenses to reach $1.57 billion, marking a 12% increase from the previous year, which is consistent with consensus figures.
Earnings per share (EPS) for Discover Financial are forecasted at $3.00, closely aligning with the street's expectation of $3.02. The upcoming second-quarter results will be scrutinized for credit trends, details on the student loan portfolio sale, any executive management updates, insights on the Capital One acquisition, guidance revisions, and developments regarding legacy compliance issues.
On July 1, Discover Financial reached a settlement agreement with merchants regarding a card product misclassification issue. The settlement is pending court and other regulatory approvals.
Discover Financial had previously updated its liability estimate to $1.2 billion in the first quarter of 2024 to address the misclassification, and it expects that all payments under the new settlement will be sufficiently covered by this amount.
In other recent news, the Federal Reserve's annual stress test indicated that 31 major U.S. banks, including JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC), have the capital necessary to withstand a severe economic downturn.
Despite anticipated higher losses, the banks' capital levels were more than double the regulatory requirements. In related news, Discover Financial Services has been the focus of several developments.
Deutsche Bank (ETR:DBKGn) recently reduced Discover's stock price target to $136 from $137, reflecting an updated earnings model and valuation. Discover's pending merger with Capital One is also under regulatory review, which has resulted in a neutral rating from BTIG.
Additionally, Discover's U.S. student loan portfolio, valued at approximately $10 billion, is up for sale with Carlyle Group (NASDAQ:CG) Inc and KKR & Co as the final bidders. These recent developments reflect the dynamic nature of the financial sector and the strategic moves companies are making in response to changing market conditions.
InvestingPro Insights
In light of Jefferies' recent price target increase for Discover Financial Services (NYSE: DFS), a glance at the InvestingPro platform reveals additional factors that could influence investor sentiment. Notably, Discover Financial has been consistent in rewarding shareholders, having raised its dividend for 13 consecutive years and maintaining dividend payments for 18 years, which underscores the company's commitment to returning value to its investors. Furthermore, the optimism among analysts is palpable, with 7 analysts having revised their earnings predictions upwards for the upcoming period, signaling confidence in the company's financial prospects.
From a valuation standpoint, Discover Financial's market capitalization stands at $32.32 billion, with an attractive price-to-earnings (P/E) ratio of 14.05 based on the last twelve months as of Q1 2024. This is complemented by a price/book ratio of 2.36, which may appeal to value-oriented investors. Additionally, despite a slight revenue contraction of 8.51% during the last twelve months as of Q1 2024, the company has managed to achieve a robust gross profit margin of 93.63%.
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