Discover Financial Considers Sale of Student Loan Portfolio

Discover Financial Inc. recently announced its plans to explore the sale of its substantial $10.5 billion portfolio of student loans. Analysts at J.P.Morgan have deemed this a "potential modest positive" for the company's stock.

Analyst Richard B. Shane, in a research note on Thursday, reiterated a neutral rating on Discover Financial and highlighted that divesting from the student loan servicing business would significantly reduce reputational risk. This move comes as the company faces various regulatory issues, including the classification of certain credit card accounts.

To date, Discover Financial suspended stock buybacks in September. However, J.P.Morgan estimates a potential $417 million gain resulting from the student loan portfolio sale. In turn, they project a 3% increase in Discover Financial's 2025 earnings per share if half of the capital freed from this transaction is used for stock repurchases.

In addition to this development, Discover Financial Services is undergoing a search for a new chief executive following the departure of Roger C. Hochschild in August. Shane suggests that stock repurchases are likely to resume once a permanent CEO is identified.

Despite these changes, Discover Financial's stock remains strong. In premarket trading on Thursday, the stock showed a 0.4% increase. Over the past month, it has experienced a solid 9.6% growth compared to the 9.2% gain observed by the S&P 500.