J.P. Morgan's Thoughts on Discover Financial

J.P. Morgan published its report today on Discover Financial Services DFS in anticipation of Thursday's earnings. In a note to clients, "YTD, DFS has significantly outperformed the peer group, appreciating 31.0% compared to the group average of 18.4% and the SPX return of 11.2%. The company currently trades at a 10.9x our $1.77 FY2011 estimate (inline with consensus). With expected declines in margin and loan growth this quarter, we believe any earnings upside will be release-driven, an earnings driver which investors have appeared to discount. We anticipate approximately $144M of allowance release this quarter (compared to $166M in the previous quarter), or 40% of pretax income." J.P. Morgan remains Neutral on DFS with an $18 price target. DFS is trading at $19.03.