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Sterne Agee sees cost pressures for Discover

The Associated Press

Higher costs could drag down earnings for Discover Financial over the next two years, according to Sterne Agee, which lowered its ratings on the company.

Analysts Henry Coffey Jr. and Calvin Hotrum lowered their estimates for 2013 and 2014 per-share earnings. They said the company had set aside more money for potential loan losses, and spent more on marketing and personnel, than they expected in the latest quarter.

They lowered their estimates largely to reflect the higher costs, and said they now expect per-share earnings of $4.40, down from $4.50, for 2013, and $4.60, down from $4.75, for 2014.

For the 2012 fiscal year, the company earned $4.46 per share.

Last week, Discover reported higher earnings and revenue for the fiscal fourth quarter. Customers stepped up spending in the quarter, and the company wrote off fewer unpaid balances. So while Discover's customers racked up more debt, more of them paid off credit card balances on time.

Even so, the higher earnings still fell short of Wall Street expectations. The stock fell more than 3 percent on Thursday, the day the company released earnings, closing at $38.41.

On Monday morning, shares of Discover Financial Services rose 12 cents to $38.62.