Analyst Note| Michael Miller |
Narrow-moat-rated Discover Financial reported good fourth-quarter results, though strong interest income growth was offset by higher credit provisioning. Net revenue increased 27% year over year and 7.3% sequentially to $3.73 billion. Earnings per share rose 4% from last year to $3.77, which translates to a return on equity of 28%. As we incorporate these results, we are maintaining our $146 fair value estimate. While we do see the shares as currently undervalued, we note that Discover is materially exposed to uncertain macroeconomic conditions, and its near-term results will be affected by factors outside its control.