November 6, 2007


DDiscover is the smallest of the U.S.-based credit card companies, behind American Express, Visa, and MasterCard (NYSE: MA). Its three key advantages are owning its own network, the high credit quality of its cardholders, and DOJ rulings that cut down restrictive practices of Visa and MasterCard. The share price is down because of concerns that Discover may not get adequate returns on securitizing credit card receivables, along with the predictable drop after a spin-off. By my estimates, though, Discover is trading around 40% below its intrinsic value.

It is a MF Inside Value Recommendation

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