Discover Financial shares up after analyst upgrade

Shares rose $1.16, or 10.9 percent, to close at $11.76. The stock has traded between $7.52 and $22.20 during the past 52 weeks.

Michael Taiano upgraded Discover Financial to "Hold" from "Sell," as the stock has recently traded below his target price of $12. On Monday, Discover Financial closed at $10.60.

"While we continue to expect higher credit losses and margin compression to pressure earnings over the next few quarters, with the shares now trading below tangible book value, we believe the downside risk to earnings is appropriately reflected in the current share price," Taiano wrote in a research note to clients.

As credit losses continue to rise, Taiano said he expects fourth-quarter earnings to be "depressed further" as the company establishes reservers for about $2.6 billion of securitized receivables being brought back onto its balance sheet.

Taiano also said he expects consumer spending to slow further in the fourth quarter and into 2009, which "should put additional pressure on revenue."

For the fiscal year 2008, which ends Nov. 30, Taiano estimates the company will earn $1.48 per share. Analysts polled by Thomson Reuters, on average, forecast earnings of $1.50 per share.