Back to top

Image: Bigstock

Discover Financial (DFS) Up 154% in a Year: More Room to Run?

Read MoreHide Full Article

Discover Financial Services (DFS - Free Report) is well-poised for growth on the back of shift of payments to digital and its cost-cutting measures.

Over the past seven days, the company has witnessed its 2021 and 2022 earnings estimates move 0.9% and 0.2% north, respectively. This definitely reflects investors’ confidence in the stock.

As a direct banking and payment services company in the United States, Discover Financial is steadily gaining from its digital transition, primarily led by the COVID-19 pandemic. The company witnessed a solid rebound in card sales, which has been contributing to its overall performance for sometime now.

In the past year, this currently Zacks Rank #3 (Hold) company has gained a whopping 153.8%, outperforming its industry’s rally of 108.7%.

Other companies in the same space, such as Synchrony Financial (SYF - Free Report) , Ally Financial Inc. (ALLY - Free Report) and SLM Corporation (SLM - Free Report) have also soared 139.8%, 179.7% and 164.8% in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Discover Financial has been making continuous efforts by teaming up with leading organizations to increase its acceptance worldwide. The leading card issuer company has a network of more than 50 million merchant acceptance locations and 2 million ATM and cash access locations worldwide. Some of the recent deals include the ones with Payments Network Malaysia SdnBhd (PayNet) and Network International Jordan, which operates Jordanian national switch JONET.

Moreover, the company took several cost-curbing measures to combat the current economic situation. The actions include reducing account acquisition expense, cutting down on brand awareness and consideration activities, and lowering the vendor and technology spend. It also made additional moves in 2020 that enabled it to decrease $400 million from its planned expenses.

Discover Financial’s Direct Banking business has been delivering solid results for the past many years. Although the private student loan portfolio suffered to some extent in 2020, we expect the same to bounce back.

The company’s return-on-equity (ROE) reflects its growth potential. Its trailing 12-month ROE of 12.4% not only improved over the years but also compares favorably with the industry average of 7.9%.

The company’s solvency level also impresses. Its net debt-to-capital ratio stands at 23.8X, lower than the industry's average of 32.7X. As of Dec 31, 2020, it had cash and investment securities worth $25.7 billion, much higher than its long-term borrowings of $10.4 billion. This should also raise investors’ optimism on the stock.

Further Upside Left?

We believe that the company is well-poised for growth on the back of its various initiatives.

The stock carries an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

The Zacks Consensus Estimate for the company’s 2021 earnings indicates an improvement of 160.6% from the year-ago reported figure.

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research SherazMian hand-picks one to have the most explosive upside of all.

You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>