Regarding Discover's $200 million settlement and $14 million in fines over the market of credit protection products, Coffey said that "the company has set aside reserves in past quarters related to state based lawsuits and other related items tied to these products in past," and had recognized litigation related expenses of $90.8 million," during the fiscal second quarter.

Coffey rates Discover a "Buy," with a $40 price target.

Nomura analyst Bill Carcache also rates Discover a "Buy," with a $41, and said after the earnings announcement that the company's "3Q12 core EPS of $1.10 (excluding $0.23 of reserve releases and $0.12 of non-recurring litigation charges)" beat his estimate of $1.07, although it was "unclear how much of one-time litigation charges and reserve releases were incorporated in the consensus GAAP EPS estimate of $1.03."

Carcache said that Discover's fiscal third-quarter loan growth suggests "that the company continues to gain share in the total revolving credit market, which is growing at ~1% on a YoY basis."

Regarding Discover's net interest margin improvement and the inevitable end to the declines in funding costs, with the Federal Reserve's target federal funds rate in a range of 0 to 0.25% since the end of 2008, Carcache said that "Our analysis suggests that the company's NIM can remain relatively stable over the next several quarters even as credit-related and funding cost tailwinds moderate, and we believe there may be upside to next year's guidance as a result."

Discover's shares have now returned 65% year-to-date, following a 31% return during 2011.

The shares trade for 2.2 times their reported Aug. 31 book value of $18.02, and for 10 times the consensus fiscal 2013 Earnings estimate of $4.07 a share, among analysts polled by Thomson Reuters.

DFS Chart DFS data by YCharts

Interested in more on Discover Financial Services? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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