FBR Capital Reiterates an 'Outperform' on Discover Financial (DFS); Earnings Beat Mostly Due to Reserve Release, But Core Profitability Beats

FBR Capital reiterates an 'Outperform' on Discover Financial (NYSE: DFS), PT increased from $25 to $30.

FBR analyst says, "We are raising our FY(Nov)11 EPS estimate from $2.77 to $3.40 and our FY(Nov)12 EPS estimate from $2.74 to $3.05, both above consensus, reflecting primarily lower credit expense and a lower cost of funds as deposits reprice lower. While 2Q(May)11's substantial beat was primarily driven by reserve release due to continued positive credit trends, excluding the impact of the reserve release, EPS would have been ahead of FBR and consensus estimates. In addition, we expect receivables growth to accelerate in 2H11 as charge-offs decline and consumers increasingly use their credit cards. With 9% YOY growth in Discover credit volumes and 18% YOY growth in total payments volumes, we believe DFS is increasing market share in the payments space, with potential for acceleration under Durbin."

For more ratings news on Discover Financial click here and for the rating history of Discover Financial click here.

Shares of Discover Financial closed at $23.89 yesterday.

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