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Discover Financial Services: FBR Capital Markets analyst Scott Valentin reiterated an outperform rating on shares of Discover Financial Services (DFS) on Mar. 12.

The credit-card lender forecast a first-quarter loss of 22 cents to 23 cents a share on Mar. 11, after saying the company will record a pretax increase in loan loss reserves of $305 million.

"We ... urge investors to buy on any weakness related to its [first-quarter] EPS loss preannouncement," Valentin said in a note. The analyst reduced his fiscal 2010 (ending November) EPS estimate to 34 cents from 62 cents to reflect a $305 million pretax charge (34 cents per share) to build reserves equal to projected 12-month net charge-offs for bad debt, and increased his fiscal 2011 EPS estimate to $1.66 from $1.50 to reflect increased reserve releases.

Valentin said that excluding the impact of the reserve build, first-quarter EPS results of 11 cents to 12 cents were 3 cents ahead of his estimate, mostly driven by lower credit losses (8.5%, vs. his 8.7% estimate). "In addition, credit appears to be performing better than we projected", the analyst wrote, with net charge-offs lower than his expectation.

The analyst also reiterated his $19 price target on the shares.

National Semiconductor Corp.: Bank of America Merrill Lynch analyst Sumit Dhanda reiterated an underperform rating on shares of National Semiconductor Corp. (NSM) on Mar. 12.

Dhanda said in a note that the maker of chips that control power in electronic devices posted third quarter sales of $362 million on Mar. 11, beating earlier management guidance of $345 million, his own estimate of $352 million, and the Wall Street consensus view of $349 million. The analyst said the better than expected revenues were driven by strength in the company's industrial segment, which accounts for 45% of sales. Dhanda said pro forma EPS of 30 cents was ahead of his estimate of 25 cents and the Street consensus forecast of 24 cents.

Dhanda raised a fiscal 2011 EPS estimate to $1.03 from 68 cents.

"With industrial (45% of sales) having posted three quarters of double digit growth (+14% Q/Q in Q3, +17% in Q2 and +15% in Q1), we question the sustainability of industrial to serve as a major growth driver for NSM in fiscal 2011, given that industrial sales have likely normalized to or even exceeded the true consumption trend line," the analyst wrote. "In the absence of sustainable long term sales growth ... earnings growth will ultimately remain elusive, in turn putting a ceiling on share price appreciation," he said.

Dhanda has a price objective of $12 on the shares.

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