UPDATE: Citigroup Raises PT to $35 on Discover Financial Services Ahead of Q2
Citigroup remains Neutral-rated on Discover Financial Services (NYSE: DFS) and raises its price target from $33 to $35.
Citigroup comments, "DFS has had a good run, up 33% YTD. We continue to be constructive on the cards sector, particularly on a relative basis within financials. However, recent data points on lighter card spend have given us some pause. With DFS in a strong capital position that allows them to 1) buy back stock, 2) take card mkt share and 3) look at external growth, we see good support for the shares. We estimate DFS' current share price is implying a 23% long-term ROE for their card business (see Figure 2). While this is below our est'd ~30% card ROE in 2013, it is above their historical upper teens. Keep in mind, however, that every +/- 1% in assumed charge offs = a 6% delta in the card ROE model. That said, while we see some modest upside for the stock, it is hovering around fair value."
DFS closed at $32.01 on Wednesday.
(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.