Buy Rating on Discover Financial Services: Strong Growth and Strategic Merger Potential

In a report released today, Moshe Orenbuch from TD Cowen maintained a Buy rating on Discover Financial Services (DFS – Research Report), with a price target of $151.00.

Moshe Orenbuch has given his Buy rating due to a combination of factors concerning Discover Financial Services’s performance and market position. Orenbuch acknowledges the strong year-over-year card loan growth, despite a slight deceleration. In addition, he notes the favorable condition of charge-off rates, which have decreased more than seasonally expected. The report suggests that this points to a more positive outlook than anticipated, with losses tracking below estimates for the second quarter, providing a solid basis for the buy recommendation.

Moreover, Orenbuch finds the alignment of delinquency rates with seasonal trends reassuring, which indicates a stabilization in credit quality. Despite concerns about longer-lasting high losses due to the performance of recent card vintages, he emphasizes the strategic importance of the potential merger with Capital One Financial (COF). The anticipated synergies and benefits from the merger are integral to the buy rating, reflecting the potential for Discover Financial Services to enhance its market strength and shareholder value in the long term.

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Discover Financial Services (DFS) Company Description:

Illinois-based Discover Financial Services is a direct banking and payment services company. It operates through the Direct Banking and Payment Services segments.