Discover Card spinoff from Morgan Standley

**grapes** Fri Jun 08, 2007 6:07 pm

Discover Card spinoff from Morgan Standley
Blast and other gurus,

Is this one an interesting play?

Master Card IPO is a big success, the current price is probably 4 times the IPO price. Visa will IPO at 2008. American Express spinned off its AMP in 2005. First Data is already bought by private equit firms.

All in all, AXP and DISCOVER are very similar as both bank and cards network owner. VISA and MA is the same as just cards network owner.

**grapes** Wed Jul 25, 2007 7:03 pm

Re: Discover Card spinoff from Morgan Standley
Some of my recent digging results, wish to share with you all.

It looked like DISCOVER profo ma earning for 2006 is around 1B, while only 500M 2005, and more than 700M 2004. The huge difference of 2005 and 2006 earning is due to bankruptcy law changes in US that a lot people filed personal bankrupcy in 2005, which had a hit of 2005 earning. Since bad guys are gone in 2005, 2006 bankruptch rate is unusually low and hence an unusually good 2006.

Right now, the stock price is around $25. Using 2006 earning, P/E is only 13. However, assuming 2005 earning, it is 26. Using the average, which is probably more accurate, say 750 million, it is around 17. In line with S/P 500 average and a little bit cheaper than AXP. AXP is probably a better company than DFS. However, DFS is also a very profitable and relatively stable company and its debit card business may have some growth.

All in all, if the price goes down to $22, then assuming 2004 earning power, the P/E is around 15 and with 5% to 10% growth. That is probably a good buying point. So far, there is a sell from a CITI bank analyst (Note CITI Bank is also a major credit card issuer), which knocks down the price a little bit. If there are another two analyst trying to help us this way, or a market correction, I guess $22 is probably very possible. :)

grapes wrote: Blast and other gurus,

Is this one an interesting play?

Master Card IPO is a big success, the current price is probably 4 times the IPO price. Visa will IPO at 2008. American Express spinned off its AMP in 2005. First Data is already bought by private equit firms.

All in all, AXP and DISCOVER are very similar as both bank and cards network owner. VISA and MA is the same as just cards network owner.