FBR Capital Reiterates “Outpeform” Rating on Discover Financial (DFS)


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Credit card issuer Discover Financial Services ( DFS ) saw its positive rating and price target reiterated on Friday by analysts at FBR Capital.

The firm reiterated its "Outperform" rating and $19 price target on the stock, noting its strong second quarter and expectation that analysts will raise estimates for the company. That price target represents a 35% upside to the stock's Thursday closing price of $14.08.

An FBR analyst commented, "We reiterate our rating on shares of DFS after its 2Q(May)10 earnings release. We are also increasing our FY(Nov)10 and FY(Nov)11 EPS estimates. Overall, 2Q results beat Street expectations handily on better credit outlook and resulting reserve releases and lower revenue suppression benefiting margin. Credit card sales volume growth was in line with preliminary trends reported by the two major networks (Visa ( V ) and MasterCard (NYSE: MA_). We remain comfortable with our above-consensus Street estimates; at 7x our normalized EPS estimate, we believe shares are inexpensive."

Discover shares rose 7 cents, or +0.5%, in premarket trading Friday.

The Bottom Line
We have avoided shares of DFS since our early June 2008 coverage began, when the stock was trading at $15.70. The company has a .57% dividend yield, based on last night's closing stock price of $14.08. The stock has technical support in the $12 price area. If the shares can firm up, we see overhead resistance around the $16 price level. We would remain on the sidelines for now.

Discover Financial Services ( DFS ) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.3 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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