Discover's stock may have maxed out, Stifel says
NEW YORK (AP) — After a run that has lifted Discover Financial Services' stock more than 60 percent this year, it's beginning to look a little rich, according to an analyst at Stifel Nicolaus & Co.
Stifel analyst Chris Brendler removed a "Buy" rating on the company Monday, lowering the stock to "Hold." He said the main reason was that Discover now looks fully valued. It has already cleared the analyst's previous price target of $39, closing Friday at $39.31.
"While we continue to be believers in the story and expect earnings momentum to persist near term, we have a tougher time justifying another target price raise," the analyst wrote. That's especially true, the analyst said, because the economic picture remains unsettled.
Discover's stock slipped 1 percent in midday trading Monday, losing 40 cents to $38.92.
Financial stocks have rallied recently, helped by both the European Central Bank's plan to support struggling countries and the Federal Reserve. Last week, the Fed launched a new program to support the U.S. economy through buying mortgage bonds.
Brendler said the Fed's effort may "nudge the economy back into a sustainable recovery." Even so, "this rally in financials appears a bit premature, in our view."
By Stifel's estimates, Discover's stock is trading at 10 times its projected earnings per share for 2013. That looks like a "potential ceiling," the note said.
Discover, based in Riverwoods, Ill., reports third-quarter results Sept. 27. Stifel estimates the company will post earnings of $1.10 per share and revenue of $1.91 billion. That's slightly better than the Wall Street consensus. On average, analysts expect the company to post earnings of $1.03 per share and revenue of $1.91 billion, according to data from FactSet.