Discover Financial hits all-time high on outlook

NEW YORK (AP) -- Shares of Discover Financial Services hit an all-time high Wednesday on analyst predictions of better-than-expected profits for this year and next.

THE SPARK: Discover, best known for its namesake credit card, met with Wall Street analysts on Tuesday in New York. The company boosted its long-term outlook for credit card growth, raising its predictions for credit card receivables and payment volume growth.

THE BIG PICTURE: Discover, the nation's sixth-largest credit card issuer, has been working to grow its credit card business, while also pushing further into direct banking, offering auto, personal and student loans.

On Tuesday it announced plans to begin offering home equity loans beginning in the second half of this year.

THE ANALYSIS: Following the analyst meetings, Susquehanna Financial Group analyst James Friedman backed his "Positive" rating for Discover and said that average analyst predictions for the company are too low.

Friedman said he expects profits of $4.73 per share for 2013 and $5.16 per share for 2014. Analysts, on average, expect per-share profits of $4.46 and $4.63 for 2013 and 2014, respectively, according to FactSet.

The analyst said he expects the company to boost its market share through new products and partnerships, while at the same time getting a boost from lower net charge offs, or the amount of money lost on bad loans.

Sterne Agee analyst Greg Smith also backed his "Buy" rating for the stock and increased his target price by $1 to $46, pointing to improving credit trends and the company's guidance of expense levels in line with his expectations.

"We believe that Discover is an outlier among large financial institutions with some of the best returns, good growth prospects, a very strong balance sheet, but one of the lowest valuations," Smith wrote in a note to investors.

THE SHARES: Up $1.38, or 3.3 percent, to $43.51 in afternoon trading, after peaking at $43.50 earlier in the session and besting an all-time high set the day before. Discover shares have climbed steadily since bottoming out four years ago, increasing eight-fold since March 2009.