Discover should be bought on earnings selloff, says Citi

Citi recommends buying shares of Discover Financial Services today on the post-earnings selloff. Relative to Citi’s estimates, the miss was mainly driven by higher provision and operating expenses, mitigated by higher fee income while net interest revenue was largely in line, the analyst tells investors in a research note. The firm says the release noted a reserve for customer remediation within other expense, but didn’t specify the exact amount. Citi expects the shares to underperform largely on the card loss guides, but is a buyer of the shares given clarity on credit losses, a pull-forward of reserves in Q4, as well as catalysts of resuming share repurchases in the second half of 2024 and the sale of its student loan portfolio later in the year. The firm has a Buy rating on the stock with a $133 price target.