Discover Climbs After FBR Boosts Rating to Outperform

Discover Financial Services (DFS), the credit-card issuer that has expanded into home and student lending, climbed the most in two months after FBR Capital Markets raised its rating on the firm.

Discover gained 2.2 percent to close at $43.06 in New York, the most since Jan. 2. Shares of the Riverwoods, Illinois-based company have advanced 12 percent this year, compared with the 11 percent rise of the 81-company Standard & Poor’s 500 Financials Index.

“The company’s strategic vision remains clear, consistent, and compellingly attractive, and is being executed on, at or above target,” Jason Arnold, an analyst at RBC Capital Markets in San Francisco, said today in a research note. Arnold made Discover his top pick.

Scott Valentin, an analyst at Arlington, Virginia-based FBR, raised his rating on Discover to outperform from market perform today and increased his 2013 and 2014 earnings estimates. He said the company is experiencing higher-than- expected growth in receivables.

The lender, which began offering mortgages last year, said in a presentation yesterday that it originated more than $2 billion in home loans in the first six months.

Discover will begin offering closed-end and fixed-rate home-equity loans of as much as $100,000 later this year as it seeks to benefit from an improving housing market, Carlos Minetti, president of consumer banking and operations, said in the presentation.

“Our growing expertise in personal loans and home loans give us the foundation to expand into home equity,” Minetti said.

About 80 percent of Discover customers are homeowners, according to the company. The home-equity loans will not affect 2013 or 2014 earnings, Minetti said.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

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