Discover Financial Services Beats the Street

According to a report from Morgan Stanley, Discover Financial Services

beat was straightforward, driven primarily by larger-than-expected reserve release. Credit trends improved substantially q/q, although DFS guided to a roughly level q/q charge-off rate in 4Q10 due to seasonality and potential for higher bankruptcy filings. In addition, fee income benefited from continued merchant acquirer signings. Management also highlighted the SLC acquisition ($4.2B of private student loans & platform). While Morgan Stanley is incrementally more positive on the stock post the acquisition as it created a future growth catalyst, Morgan Stanley remains Equal-weight and sees more upside in AXP ($43.12) based on Morgan Stanley's view that it will continue to gain share of US Personal Consumption and expand profit margin. DFS closed Monday at $16.16.