Discover Financial's Focus On Prudent Growth Is Paying Off, Says Jefferies

"We believe competition remains intense, while we believe cash rewards are the most salient offering to consumers, and in this category DFS is the market leader. We also note that DFS is asset sensitive from a rate perspective, while the completion of AML remediation should stabilize expenses and enable efficiencies," analyst John Hecht wrote in a note.

Hecht said loan growth has tracked the mid-range of guidance of 3–5 percent, and Discover has been slowly expanding its addressable market with a keen focus on taking prudent risk.

Related Link: 10 Companies Apple Almost Bought In The Past 10 Years

Further, the analyst highlighted the company operates extremely efficiently versus peers with an overall efficiency ratio in the high 30 percent range.

Hecht also raised his price target by $4 to $70 on potential for incremental loan growth, improvement in peer multiples and increased share repurchases providing additional support to the stock.

Hecht expects EPS of $5.68 for 2016 and $6 for 2017. The $70 target is based on 11.5x FY17 EPS estimate and about 2.5x tangible book value and implies potential upside of 17 percent over recent close.

At time of writing, shares of Discover were down 0.75 percent to $59.55.

Full ratings data available on Benzinga Pro.