Analyst sees potential Discover Financial student loan portfolio sale as a 'potential modest positive' for the stock

Discover Financial Inc.'s (DFS) plan to explore the sale of its $10.5 billion student loan portfolio amounts to a "potential modest positive" for the stock, analysts at J.P.Morgan said in a research note on Thursday. Analyst Richard B. Shane reiterated a neutral rating on Discover Financial, and said exiting the student loan serving business reduces reputational risk, even as the company faces other regulatory issues such as classification of some credit card accounts. The company suspended stock buybacks in September. With an estimated $417 million gain on its student loan portfolio, J.P.Morgan projected a 3% accretion to Discover Financial's 2025 earnings per share if half the capital freed by the potential loan sale is allocated to buying back stock. Discover Financial Services has also been searching for a new chief executive after the departure of Roger C. Hochschild in August. "We continue to believe that repurchases are most likely to resume in conjunction with a permanent CEO being identified," Shane said. Discover Financial's stock was up by 0.4% in premarket trades on Thursday. The stock has risen about 9.6% in the past month, compared to a 9.2% gain by the S&P 500 .

-Steve Gelsi

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11-30-23 0743ET

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