RIVERWOODS, Ill. - Discover Financial Services (NYSE:DFS) has reached an agreement to sell its private student loan portfolio, valued at roughly $10.1 billion, to investment partnerships managed by Carlyle (NASDAQ:CG) and KKR (NYSE:KKR). The servicing of the loans will transition to Firstmark Services, a division of Nelnet (NYSE:NYSE:NNI), following the sale's completion.
The transaction, which is expected to be finalized in stages by the end of 2024, will see Discover receive a purchase price that exceeds the portfolio's principal balance, potentially reaching up to $10.8 billion. This sale is contingent upon customary closing conditions being met or waived.
Wells Fargo (NYSE:WFC) acted as the exclusive financial advisor to Discover during the deal, while legal counsel was provided by Skadden, Arps, Slate, Meagher & Flom LLP.
Discover, known for its Discover card and other financial services, has been a prominent figure in the U.S. banking and payments industry since 1986. The company's offerings include personal and home loans, as well as deposit accounts.
The sale of the student loan portfolio is a significant move for Discover, as it represents a substantial portion of its business. The decision to sell the portfolio and the subsequent transfer of servicing rights marks a notable shift in the company's operations.
As with any transaction of this magnitude, there are potential risks and uncertainties that could affect the expected benefits and the timeline of the sale. Discover has highlighted that the anticipated advantages of the deal might not be fully realized or could take longer than expected.
Investors and stakeholders in the involved companies may follow the development of the transaction closely, as it progresses toward the anticipated closing by the end of 2024. This news is based on a press release statement from Discover Financial Services.
In other recent news, The Carlyle Group (NASDAQ:CG) has been the subject of several analyst adjustments following its Q1 2024 earnings report. Jefferies maintained a Hold rating and raised the price target to $45.00, citing an anticipated improvement in Fee-Related Earnings (FRE), despite a decrease in Distributable Earnings (DE) per share estimates.
The firm also highlighted the company's ambitious $40 billion fundraising goal for 2024 and predicted an increase in share repurchase activities.
TD Cowen also maintained a Hold rating but lowered the price target from $49.00 to $45.00. The adjustment came despite The Carlyle Group's better-than-expected financial results for Q1 2024. The firm noted challenges in the asset management sector, including inconsistent net flows and complex interplay between volume and fee rates.
KBW maintained a Market Perform rating on the stock and revised its price target to $48.00 from $50.00. The adjustment followed the company's Q1 earnings report, which beat expectations on DE and FRE but raised concerns over the contributing components. Oppenheimer, despite maintaining an Outperform rating, reduced its price target to $68.00 from $74.00, citing mixed results in the first-quarter earnings report.
Lastly, BofA Securities maintained an Underperform rating and cut the price target from $39.00 to $37.00. Despite The Carlyle Group's earnings per share surpassing expectations, the firm underperformed in several areas, including fundraising, investing, and management fees. The company's ability to meet its $40 billion fundraising goal for 2024 was also questioned. These are some of the recent developments concerning The Carlyle Group.
InvestingPro Insights
As Discover Financial Services embarks on the significant divestiture of its private student loan portfolio, Carlyle Group (NASDAQ:CG), the acquiring entity, presents intriguing metrics that could influence investor sentiment. The adjusted market capitalization of Carlyle stands at $16.74 billion, reflecting the scale and financial clout of the firm in managing such a substantial transaction.
Investors analyzing Carlyle's financial health will note the company's P/E Ratio (adjusted for the last twelve months as of Q1 2024) at -26.16, suggesting that the market has priced its shares higher relative to earnings, which can be a sign of investors' high expectations for future growth. Additionally, the company's revenue has seen a notable decrease, contracting by 33.6% in the last twelve months as of Q1 2024, which could be a point of consideration when assessing the company's performance trajectory post-acquisition.
One InvestingPro Tip to consider is the PEG Ratio, which stands at 0.14 for Carlyle as of Q1 2024. This low PEG ratio might indicate that the company's stock could be undervalued based on its earnings growth potential, a factor worth evaluating in the context of this strategic acquisition.
For those interested in further insights, InvestingPro offers additional tips on Carlyle and other companies involved in this transaction. There are currently 5 more InvestingPro Tips available for Carlyle, which could provide deeper analysis for investors monitoring the impact of this sale. To access these additional insights, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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