Will Investors Discover the Discover Card? (DFS, MS, AXP, MA)

Banking, finance, and taxes

Published: July 6, 2007 11:45 am

Discover Financial Services (DFS-NYSE) has been trading for one trading week now, albeit it is technically a 3 and a half day week. Now that the distribution of these shares is complete from Morgan Stanley (MS-NYSE), there are approximately 477 million shares of Discover stock outstanding and Discover’s capital base is approximately $5.5 Billion.

Shares have seen a ho-hum reaction, and unfortunately are trading down another 1.6% at $25.53 today. These spin-offs often come under profit taking and a ‘sell the event’ trading pattern, and that has happened here. Shares opened close to $28.50 on Monday and have closed lower each day.

The problem with Discover is that they are not at all an American Express (AXP-NYSE) and are not even comparable to Mastercard (MA-NYSE). It isn’t that all the Discover credit card holders are sub-prime, but the stigma on the street is that it is a lower brand of credit card (no offense) and that the credit quality of card holders is lower. Shares of Mastercard opened on Monday at $165.50 and have traded down to $161.00 or so today. American Express shares opened Monday at $61.31 (adjusted for $0.15 dividend) and are at $61.40 today.

So it isn’t really as though Discover has had a great peer group to debut trading in, but its performance has been pretty poor so far. This one will ultimately find its own place, it’s just a question of at what price.

Jon C. Ogg
July 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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