Analyst Note| Michael Miller |
Narrow-moat Discover reported strong first-quarter earnings as loan growth accelerated and credit losses remain surprisingly low. Including a $139 million unrealized loss on equity investments, revenue increased 4% from last year to $2.94 billion. Earnings per share fell 16% from the prior-year quarter, which benefited from a significant credit loss reserve release, and increased 16% sequentially to $4.22. With the earnings release, Discover announced a new $4.2 billion share repurchase plan and a 20% increase in its annual dividend to $0.60 per share. While this was a strong report, there was nothing to materially change our thinking on the company and we are maintaining our fair value estimate of $138.