Please ensure Javascript is enabled for purposes of website accessibility

Why Discover Financial Services Will Keep Flying

By Brian D. Pacampara, CFA - Feb 14, 2014 at 11:07AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Does this analyst make a good case, or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Discover Financial Services (DFS 0.90%) climbed 1% this morning after Jefferies upgraded the credit card giant from hold to buy.

So what: Along with the upgrade, analyst Daniel Furtado raised his price target to $65 (from $57), representing about 16% worth of upside to yesterday's close. While contrarians might be turned off by Discover's price strength over the past year, Furtado thinks there's more room to run given his view of better-than-expected asset growth in 2014.

Now what: According to Jefferies, Discover's risk/reward trade-off remains rather attractive. "We are increasing our EPS estimates 14% in FY'15 from $5.26 to $6.00, 10% above consensus we believe the Street is not yet modeling in higher asset growth and net interest margins that should remain elevated," noted Furtado.

When you couple that positive outlook with Discover's industry-lagging P/E, it's tough to disagree with Jefferies' upgrade.

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Discover Financial Services Stock Quote
Discover Financial Services
DFS
$108.95 (0.90%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.