On Thursday, HSBC has updated its price target for Discover Financial Services (NYSE:DFS), raising it significantly to $144.00 from the previous target of $107.00. The firm has decided to maintain a Hold rating on the stock. This adjustment in the price target comes as a response to the recent announcement of Capital One's proposed acquisition of Discover Financial, which was made public on February 19, 2024.
The new price target is informed by the exchange ratio detailed in the acquisition terms, which offers 1.0192 Capital One shares for each share of Discover. This calculation is based on Capital One's closing share price as of March 20, 2024. HSBC has shifted its valuation approach for Discover, moving away from the previous two-stage residual income model.
According to HSBC, the future price of Discover's shares is anticipated to be influenced by the performance of Capital One's stock and how the market judges the probability of the acquisition's completion. At present, Discover's shares are trading at approximately a 13% discount to the proposed acquisition price.
HSBC has stated that it will not be altering its standalone financial forecasts for either Discover or Capital One at this juncture.
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