Discover Spinoff from Morgan Stanley

DiscoverMorgan StanleyOn June 30 Morgan Stanley (MS) will be spinning off it’s Discover Financial Services business to shareholders.  I believe this poses a great opportunity for investors as Morgan Stanley, like it’s peers in the investment services industry, is quite undervalued.

However, credit card companies like Mastercard and American Express are commanding good premiums for their shares.  Therefore, once Discover is it’s own publically traded company, it’s shares should rise to meet it’s peers valuations.

Discover should be able to increase earnings as independent company as there won’t be the conflict of interest when getting banks to distribute cards any longer.  Many firm/banks didn’t want to deal with Discover because the parent company Morgan Stanley is a competitor of theirs.  This won’t be a problem now.  Also, being independent should unlock the entrepreneurial spirit in the company.

There is also the possibility that another firm may want to buy Discover, especially if the price doesn’t rise significantly right away.

After the spinoff, keeping Morgan Stanley is still worthwhile, even though you may not see much appreciation in their stock for a while as the market has been keeping them and their peers down for some time, but holders should be rewarded eventually.

I grabbed a few shares yesterday.

Full Disclosure: I own shares of Morgan Stanley.

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