RED FLAGS: 1. Mis­lead­ing earn­ings: DFS reported a $295mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $998mm (a dif­fer­ence of $1,293mm or over 100% of reported net income). The majority of the overstated reported earnings comes from a one-time gain from an anti-trust settlement of $1,892mm. 2. Very dan­ger­ous val­u­a­tion: stock price of $19 implies DFS must grow its NOPAT at over 10% com­pounded annu­ally for 40 years. A 40-year growth appre­ci­a­tion period with a 10%+ com­pound­ing growth rate sets expectations for future cash flow performance quite high. Historical growth rates have never been much lower. 3. Free Cash Flow was -$2,470mm or -26% of the company’s enterprise value last year. 4. Asset write-offs of $428mm or 5% of net assets – this means that management has written off at least $0.05 of assets for every $1 on the current balance sheet. Writing off assets is the opposite of creating shareholder value as it reflects management’s inability to derive any profits for the investments it makes with shareholder funds. 5. Off-balance sheet debt of $38mm or 0.5% of net assets. 6. Outstanding stock option liability of $8mm or less than 1% of current market value.