By Discover Financial Services’ stock experienced a significant boost on Monday following news that the payment-services company will not be subject to any fines for shortcomings in its compliance-management systems. Although changes will need to be made, the absence of financial penalties brought relief to investors.
In a statement released after Friday’s market close, Discover Bank confirmed that it received a consent order from the Federal Deposit Insurance Corporation (FDIC) regarding issues identified in an October examination. Notably, the bank agreed to the order while neither admitting nor denying any violations.
According to a filing with the Securities and Exchange Commission, Discover Bank is committed to enhancing its consumer compliance management system, as well as reinforcing related corporate governance and enterprise risk management practices. The bank also aims to increase Board oversight in these areas.
Investors responded positively to the absence of financial penalties outlined in the order. As a result, Discover’s stock surged by 6.6% to reach $92.38 during morning trading. This increase marked the largest percentage rise since November 2022, according to Dow Jones Market Data. Furthermore, Discover’s stock emerged as the top performer in the S&P 500 on Monday morning.
Discover Stock Experiences 5.5% Decline in 2021
Discover stock has seen a decline of 5.5% this year. The company made an announcement on July 20 regarding issues that resulted in a consent order. These issues date back to around 2007 and involve the misclassification of certain credit-card accounts. This misclassification boosted costs for some merchants, but did not impact cardholders.
Following these developments, Discover announced in August that Chief Executive Roger Hochschild would step down from his role as CEO and as a member of the board.
Analyst’s Perspective
In a research note published on Monday, RBC Capital Markets analyst Jon Arfstrom shared his insights on the matter. He mentioned that while the identified weaknesses outlined in the consent order may cause some concern, the requirements appear to be achievable.
Arfstrom also noted that the consent order from the FDIC does not impose any restrictions on Discover’s business operations. He viewed this aspect as a positive for the company.
The analyst further stated, “If the company can demonstrate an acceptable timeline and path to meeting these requirements, and do so without significant expense pressures, we believe this situation can be effectively managed. As a result, we maintain an optimistic view on the stock’s valuation.” Arfstrom has assigned an Outperform rating to the stock, with a $120 price target.
Comments