Discover Leads S&P 500 Financials on Earnings: Chicago Mover

Discover Financial Services (DFS), credit-card issuer and payment-network operator, led gainers in the Standard & Poor’s 500 Financials Index after posting record fiscal first-quarter profit.

The stock rose 4.5 percent to $33.05 at 12:03 p.m. in New York, on top of Discover’s 40 percent advance in the last year through yesterday. Discover beat analysts’ estimates by posting a 36 percent gain in net income to $631 million for the three months ended Feb. 29, according to a statement yesterday from the Riverwoods, Illinois-based firm.

“The question is, how much of that good stuff is factored into the stock?” said Sanjay Sakhrani, an analyst at KBW Inc., who rates Discover outperform, meaning he expects the stock to return at least 15 percent over 12 months. “It’s definitely had a nice run, but it seems like the constructive trends should continue for some time.”

Visa Inc., the world’s biggest payments network, slid 0.1 percent at 11:27 a.m., and MasterCard Inc. (MA), the No. 2 network, gained 0.2 percent. American Express Co. (AXP), the biggest U.S. credit-card issuer by purchases, advanced 0.2 percent.

Chairman and Chief Executive Officer David Nelms boosted the quarterly dividend 67 percent in December to 10 cents a share and bought back stock as the U.S. economy continued to mend. The lender acquired a portfolio of private student loans from Citigroup Inc. (C) in September and set a $2 billion share- buyback plan last week after the Federal Reserve announced the results of bank stress tests.

Gradual Growth

“Consumers are continuing to gradually grow their spending,” Nelms, 51, said in a telephone interview. “They’ve finished a lot of the deleveraging that they’re going to do on credit cards and auto loans.”

Revenue net of interest expense rose 6 percent to $1.84 billion as purchases made with Discover cards increased 7 percent, the lender said. Net interest income climbed 11 percent to $1.29 billion, and credit-card loans rose 3.6 percent to $45.9 billion. Results included a $226 million reserve release.

To contact the reporter on this story: Patrick Clark in New York at pclark48@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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