Morgan Stanley Sees Good Things Ahead for Discover Financial Services

In a report published Wednesday, Morgan Stanley analyst Betsy L. Graseck reiterated an Overweight rating and $66.00 price target on

. In the report, Morgan Stanley noted, “We are OW DFS as an improving US consumer is likely to drive stronger loan growth, lower for longer credit losses, resilient NIM and higher capital return. Our $66 PT is based on a 11.5x multiple on our 2015 EPS of $5.72. DFS loans were up 4.2% y/y in 4Q13 even while industry loan growth was flat, implying DFS is taking share. As industry loan growth picks up to ~1%, we expect loan growth at DFS will accelerate to 4.5% in 2014/15. NIM (NII/loans as reported by DFS) improved 6bps q/q to 9.87%. Benefits from lower funding costs, stronger loan growth and lower interest charge-offs are likely to keep NIM elevated in the near future. We expect NIM remains relatively flat at 9.85% in 2014 before dipping slightly to 9.74% in 2015. We expect gross charge offs will remain relatively flat, with recoveries fading only slightly in 2015, and model NCOs at 2.2% in 2014 and 2.3% in 2015.” Discover Financial Services closed on Tuesday at $56.67.