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Table of Contents

Lead Story

Awaken your ATM ambitions

News

Industry Update

GSTravelAdvice.com: A windfall for wanderlust

CyberSource woos and wins Authorize.Net

Yanks chalk up another fine NEAA show

Discover flying solo

The ATM story in numbers

Features

AgenTalkSM:
Bill Beattie

Contactless and the ATM?

Tracy Kitten
ATMmarketplace.com

Views

Building m-commerce momentum

Paul Rasori
VeriFone

It's cool to build karma

Ken Musante
Humboldt Merchant Services

Education

Street SmartsSM:
Ruminations on ISO registration

Dee Karawadra
Impact PaySystem

Sell something every merchant craves

Marcelo Paladini
Cynergy Data

PCI compliance: A brand builder, not a burden

J. David Siembieda
CrossCheck Inc.

Vigilant compliance revisited

David H. Press
Integrity Bankcard Consultants Inc.

Rake it in: Resell basic security services

Michael Petitti
AmbironTrustWave

New Products

Souped-up, secure e-billing

Company: MODASolutions
Product: eBillme

Software steroid for POS terminals

Company: Hypercom Corp.
Product: SmartPayments Client

Inspiration

Are your ears burning?

Departments

Forum

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

July 09, 2007  •  Issue 07:07:01

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Discover flying solo

Like a baby bird cast from its nest, Discover Financial Services LLC has left the Morgan Stanley fold. The Discover brand, which has consistently lagged behind bankcards and American Express Co. as a favored payment instrument, is now an independent company trading as DFS on the New York Stock Exchange.

Trading began July 2, following a distribution of Discover common stock to Morgan Stanley shareholders. They received one share of Discover for every two shares of Morgan Stanley common stock.

At the market close on its debut day, DFS was trading at $30.15 per share.

Fledgling pricing

Leading up to the spinoff, Discover was trading at $31 on a when-issued basis, which works out to about 15 times estimated per-share earnings for 2007, according to Rick Biggs, an Analyst with Bankstocks.com.

Some analysts have said the offering was overpriced, but in a June 22 report, Biggs said it was too early to tell. "[W]hile Discover's current $31 when-issued price might seem high, it may not be unreasonable," he wrote. The lack of similar companies to compare with Discover makes it tough to evaluate, he noted.

The closest comparison is AmEx, which trades at just over 16 times earnings "but with a much superior franchise," Biggs wrote. Biggs added that the per-share price could drop by 15% post-spinoff as long-time stockholders reassess their investments.

Discover's move follows MasterCard's change to public company status in 2006, which went off at $46 a share. On July 2, MasterCard stock was trading at nearly four times that price, $166.18.

A growing public flock

Visa Inc., meanwhile, is preparing to take itself public by early 2008. Industry Consultant Paul Martaus suggested Discover's timing could bode well. "There are plenty of eyes on financial services stocks these days, especially with First Data going private," Martaus said.

The private equity firm Kohlberg Kravis Roberts & Co. announced it would pay $29 billion for First Data Corp., or about $34 a share.

First Data is the largest transaction acquiring company in the United States, and a leading provider of card-issuing and related payment services. On July 2, the company's stock was trading at $32.75 a share. "I expect a lot of that money will get parked in Discover," Martaus said.

Discover claims 50 million-plus cardholders and more than 4,200 card issuers. The company's two networks (Discover Card and the Pulse EFT debit card system) handled over 3 billion transactions through 4 million-plus merchant and ATM locations in 2006, according to Morgan Stanley.

For the fiscal quarter ending on May 31, Discover saw net income of $209 million compared with $343 million during the same quarter of 2006.

Managed card receivables totaled $51.4 billion as of May 31, reflecting year-over-year growth of 6%. Sales volume was also up 6% over the second quarter of 2006 and totaled $25.4 billion. Transaction volume on Discover and Pulse, combined, grew 14%.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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Spotlight Innovators:

North American Bancard | USAePay | Super G Capital LLC | Humboldt Merchant Services | Impact Paysystems | Electronic Merchant Systems