UPDATE: Citigroup Reiterates Neutral Rating, Raises PT on Discover Financial Services

In a report published Friday, Citigroup reiterated its Neutral rating on Discover Financial Services

, and raised its price target from $41.00 to $43.00. Citigroup noted, “DFS reported EPS of $1.21, a beat vs. our $1.12 estimate and consensus $1.03. The beat was driven by a larger-than-expected reserve release in cards and better gain-on-sale from the new mortgage business, partially offset by a legal accrual related to the FDIC/CFPB settlement. The highlight of the quarter was the higher NIM at 9.44% (+13 bps q/q), which mgt expects to remain elevated at least through 2012. DFS is benefiting from a combination of 1) continued high ROA in the card business, 2) capital return and 3) new initiatives, including further leveraging their network. The recent PayPal deal is an example of scaling their network, though it remains to be seen if meaningful volumes materialize.” Discover Financial Services closed on Thursday at $39.71.