Discover Financial Services "equal weight," target price reduced

12/19/07 - Lehman Brothers

NEW YORK, December 19 (newratings.com) - Analyst Bruce W Harting of Lehman Brothers reiterates his "equal weight" rating on Discover Financial Services (DFS), while reducing his estimates for the company. The target price has been reduced from $23 to $21.

In a research note published this morning, the analyst mentions that the company’s 4Q07 GAAP results would be negatively impacted by a pretax charge of $422 million related to a goodwill impairment for the UK business. Discover Financial Services may need to significantly raise loan loss provisions in the upcoming 12 months, the analyst adds. The downward revision in the EPS estimate for 2007 reflects a narrower difference the Prime and Libor rates and marginally higher-than-anticipated delinquency trends in the company’s trust data, Lehman Brothers says. The EPS estimates for 2007 and 2008 have been reduced from $1.78 to $1.74 and from $1.88 to $1.72, respectively.