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On Thursday, Barclays (LON:BARC) updated its outlook on Discover Financial Services (NYSE: NYSE:DFS), raising the price target from $186.00 to $209.00 while maintaining an Overweight rating on the company's stock. The adjustment followed the company's recent earnings report, which surpassed expectations. The stock, currently trading at $200.96 with a market capitalization of $50.55 billion, has delivered an impressive 100.72% return over the past year. According to InvestingPro analysis, the company's stock is currently trading slightly below its calculated Fair Value.
Discover Financial reported an adjusted earnings per share (EPS) of $5.11, outperforming the consensus estimate of $3.24 and Barclays’ own forecast of $3.98, including gains on sale (GOS). Barclays analyst Terry Ma attributed the better-than-expected results to several factors, including a significant beat on provisions, a modest outperformance in net interest income (NII), and a slight increase in other income. However, these were partially offset by higher-than-anticipated non-interest expenses.
The report highlighted several positive aspects of Discover Financial's quarter. Notably, the 30+ day card delinquency rate stood at 3.84%, which was not only below Barclays’ estimate of 3.94% but also represented a year-over-year improvement from December. This marked the first year-over-year improvement in card delinquencies since March 2022. Barclays also pointed out that management has projected a downward trend for consolidated net charge-offs (NCOs) in 2025.
Additionally, the 2023 card vintage is maturing and is expected to slightly outperform the 2022 vintage. Another positive sign was the quarter-over-quarter decrease in the reserve rate by 31 basis points. Without seasonal balance increases, the decline would have been around 20 basis points.
Barclays’ revised price target reflects the firm's confidence in Discover Financial's performance and management's guidance for the future. The Overweight rating suggests that Barclays continues to see the stock as a good investment relative to the sector.
In other recent news, Discover Financial Services has reported impressive Q4 2024 financial performance, significantly surpassing market expectations. The company announced earnings per share (EPS) of $5.11, well above the forecasted $3.2, and revenue of $4.76 billion, exceeding the anticipated $4.41 billion. The sale of the student loan portfolio contributed a $70 million gain, and the company revised its 2024 loan growth expectations to low to mid-single digits.
Discover's net income rose by 41% compared to the previous year, largely due to increased card receivables and a higher net interest margin. The company is also preparing for its merger with Capital One (NYSE:COF), projecting approximately $125 million in merger and integration costs for 2024.
According to Michael Shepherd, Interim CEO, and John Green, CFO, Discover's financial performance remains strong and the company continues to deliver robust results. These recent developments reflect Discover's effective management and strategic initiatives, maintaining its competitive edge in the financial services sector.
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