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Non-Tech : SPIN-OFFS "secret hiding places of stock market profits"
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To: Spekulatius who wrote (1131)1/5/2008 8:03:51 PM
From: gcrispin   of 1185
 
The problem with trying to decide if DFS is cheap at this price is deciding who you believe on earnings estimates. There is almost a 100 percent spread between the high and low estimates. Goldman Sachs is on the lower end with estimates of 1.20 for 08, 1.00 for 09, and 1.05 for 2010. The lower future estimates are based on higher funding costs and lower transactions.

The company has announced a three year 1 billion dollar buyback plan, but I wonder if the money would be better spent on aggressively growing the business. The problem is the DFS is a second tier CC in that it isn't widely accepted and more than half of their total accounts are inactive. The company has fewer cards outstanding than the others and card volume has grown at less than five percent while other networks have grown at double digits. Also, DFS has no international presence, which I think hurts their chances of being acquired. After all, they have been spun out twice and taken private once. Long term there are some appealing aspects of the company that I like, but, for me, I think it will be tough sledding for DFS to show any traction and I wonder if there are any financial institutions willing to take on the added risk at this point in the business cycle.
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