On Friday, BMO Capital Markets adjusted its price target on shares of Discover Financial Services (NYSE:DFS), increasing it to $119 from the previous $115. The firm has kept its Market Perform rating on the stock unchanged.
The revision follows Discover Financial's second-quarter 2024 net interest income (NII) surpassing expectations. BMO Capital's analyst cited the company's stronger-than-anticipated NII, which was driven by quicker card growth and a higher net interest margin (NIM), combined with reduced operating expenses, including marketing and compensation costs.
The analyst noted that Discover Financial has effectively revised its full-year guidance upward for NIM and loan growth, following the sale of its private student loan portfolio to a partnership comprising CG and KKR. However, the company has maintained its previous forecasts for costs, credit, and capital.
The new target price of $119 is based on a valuation of 1.4 times the two-year-forward tangible common equity (TCE), which itself is derived from an estimated 21% return on tangible common equity (RoTCE) and a target price-to-earnings (P/E) ratio of 7 times.
BMO Capital's updated price target reflects a modest increase and maintains a neutral view on Discover Financial's stock, even as the company shows signs of robust financial performance and efficient cost management.
In other recent news, Discover Financial Services has been in the spotlight following several significant developments. The company's 2Q performance led RBC Capital Markets to raise its stock target from $140 to $148, citing solid core trends and revenue figures that exceeded expectations.
Concurrently, Discover Financial is preparing for a merger with Capital One, anticipated to be finalized in early 2025, despite facing opposition from community groups concerned about potential implications such as increased costs for consumers.
Discover Financial has also made a strategic move to sell its private student loan portfolio to Carlyle Group (NASDAQ:CG) and KKR for up to $10.8 billion, a decision expected to influence the company's financial trajectory. Amid these developments, Jefferies increased the price target for Discover Financial to $150.00, maintaining a "Buy" rating on the stock, following robust year-over-year receivables growth.
The Federal Reserve's annual stress test revealed that despite potential losses, major U.S. banks, including Capital One, possess the necessary capital to endure a severe economic downturn. Discover Financial, in the process of being acquired by Capital One, recorded the highest losses in commercial and industrial loans at 21.8%.
InvestingPro Insights
As BMO Capital Markets revises its target price for Discover Financial Services (NYSE:DFS), investors may find additional context through real-time data and insights from InvestingPro. Notably, Discover Financial's market capitalization stands at a substantial $35.83 billion, indicating its significant presence in the financial services industry. The company's Price-to-Earnings (P/E) ratio, a key metric for valuation, is currently at 12.55, reflecting investor expectations of the company's future profitability relative to its current earnings. Importantly, Discover Financial has demonstrated a robust Price-to-Book (P/B) ratio of 2.23 over the last twelve months as of Q2 2024, which could signal that the market values the company's assets favorably compared to its book value.
From an InvestingPro perspective, two essential tips stand out. First, Discover Financial has shown a commitment to rewarding shareholders by raising its dividend for 13 consecutive years. This consistent dividend growth may appeal to income-focused investors seeking reliable returns. Second, the company has seen significant returns, with a 14.63% price total return over the last three months as of 2024. This performance is indicative of strong investor confidence and market momentum.
For those seeking a deeper dive into Discover Financial's prospects, InvestingPro offers additional insights. There are over 6 more InvestingPro Tips available, which can provide further guidance on investment decisions. To access these tips and enrich your analysis, visit https://www.investing.com/pro/DFS and consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.