Discover company's stock jumped by more than 10% instantly on the New York exchange. Such a rapid increase is remarkable in itself, but there is more to it. Let’s find out why investors should pay attention to this company and its stock.
Discover (also known as Discover Financial Services) is a large financial conglomerate specializing in credit cards, operating its own bank and payment networks, and providing various related services. What's particularly important here is its credit card business and associated operations. Despite the fact that Discover is one of the leading card makers in the US, it still trails behind Visa and Mastercard, it's in the running for the third place.
The driving force behind the growth in Discover stock growth is the news that another major player in the US top 10 credit card issuers and banks, Capital One, is going to acquire Discover for $35 billion. This news, while not typically highlighted on the economic data calendar alongside macroeconomic events, had a significant impact on asset prices, causing them to soar.
By the way, even prior to this increase, Discover stock had been demonstrating active growth – almost 40% over the past six months.
This performance is grabbing attention; however, it's essential to consider future prospects. The merger of two major players in the US credit card industry could potentially create a significant new competitor in the market long dominated by Visa and Mastercard.
However, right now, it’s too early to consider the deal as a fait accompli. There is a long way ahead where the buyout will be meticulously scrutinized by the US regulators, particularly those focused on the financial sector. However, officials might find themselves at a crossroads. On the one hand, consolidating two major players is typically viewed as undesirable. On the other hand, there's hope that the combined entity could introduce more competition to challenge the dominance of Visa and Mastercard, thereby making the market less monopolistic.
It does not matter if we believe in the potential success of the merger or not; this is definitely a situation where investors should closely monitor all related developments. Depending on the regulatory outcome, stock prices could fluctuate significantly in either direction. However, many analyst firms have already adjusted their consensus forecasts for Capital One: for example, RBC raised theirs to $150 from $142, Evercore ISI lowered theirs to $142 from $160, and Citigroup increased theirs to $165 from $152.
As evidenced by the diverse opinions of experts, it's clear that careful analysis is crucial before making any trading decisions.
