Discover exiting student loans a modest positive, says Barclays

Barclays keeps an Equal Weight rating on Discover Financial Services with a $99 price target after the company said it is exploring the sale and transfer of servicing of its student loans portfolio to a third-party provider and will stop accepting new student loan applications on February 1, 2024. The analyst estimates a “modest” 1.2% positive earnings impact from the potential sale, after factoring in potential buybacks. Longer term, however, the sale helps Discover simplify and refocus on its core card business, and exit a business that had given it compliance issues in the past, the analyst tells investors in a research note. On balance, Barclays views the news as a modest positive for Discover.