What Can Discover Financial Do With All This Excess Capital? Resume Share Buybacks

Discover Financial Services (NYSE: DFS) is among the few companies that have substantial excess capital and hopes to resume share buybacks in the final quarter of 2022, according to Morgan Stanley.

The Analyst: Betsy Graseck upgraded the rating for Discover Financial Services from Equal-Weight to Overweight, while raising the price target from $104 to $116.

The Thesis: The ongoing independent review of the company’s student loan services practices is likely to be completed this quarter, Graseck said in the upgrade note.

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“We now model $509M of buybacks for 4Q22, and an additional $3.1Bn in buybacks for 2023, adding $1.36, or 10% to our prior 2023e EPS,” the analyst wrote.

“In its updated 2022 guide, DFS boosted loan growth outlook, and we expect some persistence there going into 2023,” Graseck further mentioned. “We are taking 2023 average loan growth up from ~7% y/y to ~10% y/y,” she added.

DFS Price Action: Shares of Discover Financial Services had risen by 3.63% to $103.60 on Wednesday.

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