Discover Downgraded at FBR Capital (DFS)

Discover Downgraded at FBR Capital (DFS)


FBR Capital reported that they have reduced their rating of payment services company, Discover Financial Services(DFS) on Fridaty.

The firm announced that they have downgraded DFS from an “Outperform” to a “Market Perform,” and have reduced the company’s price target from $44 to $42. This price target suggests a 10% increase from the stock’s current price of $37.87.

An analyst from the firm noted, “while we see greater execution risk, we maintain our below-consensus FY(Nov)13 and FY(Nov)14 EPS estimates of $4.17 and $4.11, respectively. Management stated that the initiatives designed to drive receivables and transaction growth will result in elevated operating costs in 2013, with benefits to revenue occurring in 2H13 and beyond. While Discover’s credit card receivable growth indicates that it continues to take market share, and the 40% increase in the dividend evidences the ability to return capital, our concern about the ability of the new initiatives to generate sufficient revenue to offset the higher expenses increases uncertainty and therefore negatively affects valuation.”

Discover shares were mostly flat during premarket trading Friday. The stock is up 60% YTD.

The Bottom Line
Shares of Discover Financial Services (DFS) have a 1.46% dividend yield, based on last night’s closing stock price of $38.41. The stock has technical support in the $36-$38 price area. The stock is trading near all-time highs.

Discover Financial Services(DFS) is not recommended at this time, holding a DARS™ Rating of 3.4 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.

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