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Why Should You Add Discover Financial (DFS) to Your Portfolio?
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Discover Financial Services (DFS - Free Report) is well-poised for growth owing to its strategic measures, an improving top line, the shift in payments to the digital and an attractive core business.
Over the past 30 days, DFS has witnessed its 2021 and 2022 earnings estimates move 0.3% and 0.2% north, respectively. Discover Financial came up with a trailing four-quarter surprise of 32.54%, on average, beating the mark on all occasions.
Discover Financial’s return-on-equity (ROE) reflects its growth potential. Its trailing 12-month ROE of 45.6% not only improved over the years but also compares favorably with the industry average of 22.7%.
This credit card giants’ fourth-quarter results were also impressive. The financial services player is also gaining from better consumer spending levels, card acquisitions and an overall rebound in the economic conditions. Here’s why you should add the currently Zacks Rank #2 (Buy) stock to your portfolio now.
DFS made efforts to expand its business and boost its network volume. Time and again, DFS extended its global acceptance and announced new network collaborations in Portugal, Bahrain, Jordan and Malaysia. The primary drivers behind Discover Financial’s growth are sales volume and new account growth.
In the light of the pandemic, DFS gained because of growth in demand for digital payments. The surge in usage of contactless payments is here to stay even after the pandemic subsides because of the convenience it provides. To capitalize on the same, Discover Financial forged alliances and executed buyouts every now and then to expand its digital portfolio.
DFS recently teamed up with the fintech firm Buy It Mobility Networks to introduce the cardless payments method for US merchants, per reports. In January 2022, Discover Financial inked a deal with The National Bank of Serbia to boost the global acceptance for the Discover Global Network cardholders in Serbia. With this tie-up, Discover, Diners Club International, PULSE and Network Alliance cardholders can now use their cards on the DinaCard payment network.
DFS’ organic growth contributed to its healthy revenue stream. This upside was mainly driven by its higher net interest income and other total income. Revenues, net of interest income, rose 9% in 2021. We believe, the metric will continue rising in the upcoming quarters on the back of its solid market position, expansion in the global payments business and an attractive core business.
In 2021, card sales increased 28% year over year. Discover Financial expects loan growth for 2022 in the high-single digits.
DFS’ banking business provides significant diversification benefits and has been growing strongly over the past several years.
The financial services player boasts a solvency level on the back of which it continues to deploy capital. Recently, the board of directors increased its quarterly dividend 14% from 44 cents to 50 cents per share. Its net debt-to-capital ratio stands at 22.4X, lower than the industry's average of 35.1X. Its times interest earned stands at 15.9X, higher than the industry's average of 14.5X. Its solid liquidity position should instill investor’s confidence in the stock.
However, DFS’ provision for loan losses increased over the last few quarters due to higher net charge-offs, rise in reserve build, seasoning of newer vintages and constant supply-driven normalization in the consumer credit line.
Some other top-ranked stocks in the finance space are WEX Inc. (WEX - Free Report) , Cantaloupe Inc. (CTLP - Free Report) and SLM Corporation (SLM - Free Report) . WEX and Cantaloupe sport a Zacks Rank of 1, while SLM boasts a Zacks Rank of 2 at present.
WEX is a leading provider of payment processing and business solutions across a wide spectrum of sectors, including fleet, travel and healthcare. Over the past seven days, WEX has witnessed its 2022 earnings estimate move 1.6% north. WEX managed to beat on earnings in all its trailing four quarters, the average being 9.9%. WEX has a VGM Score of B.
Cantaloupe is a software and payments company, providing end-to-end technology solutions for the unattended retail market. CTLP’s earnings outpaced estimates in all the last four quarters, the average being 108.33%.
SLM Corporation is a bellwether in education finance in the United States with a market presence of more than 40 years. SLM’s earnings surpassed estimates in each of the last four quarters, the average being 34.38%. The Zacks Consensus Estimate for SLM’s 2022 earnings has moved 0.7% north in the past 30 days.
Shares of SLM have gained 4.1%, while the stocks of CTLP and WEX have lost 41.1% and 17.6%, respectively, in a year.
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Why Should You Add Discover Financial (DFS) to Your Portfolio?
Discover Financial Services (DFS - Free Report) is well-poised for growth owing to its strategic measures, an improving top line, the shift in payments to the digital and an attractive core business.
Over the past 30 days, DFS has witnessed its 2021 and 2022 earnings estimates move 0.3% and 0.2% north, respectively. Discover Financial came up with a trailing four-quarter surprise of 32.54%, on average, beating the mark on all occasions.
Discover Financial’s return-on-equity (ROE) reflects its growth potential. Its trailing 12-month ROE of 45.6% not only improved over the years but also compares favorably with the industry average of 22.7%.
This credit card giants’ fourth-quarter results were also impressive. The financial services player is also gaining from better consumer spending levels, card acquisitions and an overall rebound in the economic conditions.
Here’s why you should add the currently Zacks Rank #2 (Buy) stock to your portfolio now.
DFS made efforts to expand its business and boost its network volume. Time and again, DFS extended its global acceptance and announced new network collaborations in Portugal, Bahrain, Jordan and Malaysia. The primary drivers behind Discover Financial’s growth are sales volume and new account growth.
In the light of the pandemic, DFS gained because of growth in demand for digital payments. The surge in usage of contactless payments is here to stay even after the pandemic subsides because of the convenience it provides. To capitalize on the same, Discover Financial forged alliances and executed buyouts every now and then to expand its digital portfolio.
DFS recently teamed up with the fintech firm Buy It Mobility Networks to introduce the cardless payments method for US merchants, per reports.
In January 2022, Discover Financial inked a deal with The National Bank of Serbia to boost the global acceptance for the Discover Global Network cardholders in Serbia. With this tie-up, Discover, Diners Club International, PULSE and Network Alliance cardholders can now use their cards on the DinaCard payment network.
DFS’ organic growth contributed to its healthy revenue stream. This upside was mainly driven by its higher net interest income and other total income. Revenues, net of interest income, rose 9% in 2021. We believe, the metric will continue rising in the upcoming quarters on the back of its solid market position, expansion in the global payments business and an attractive core business.
In 2021, card sales increased 28% year over year. Discover Financial expects loan growth for 2022 in the high-single digits.
DFS’ banking business provides significant diversification benefits and has been growing strongly over the past several years.
The financial services player boasts a solvency level on the back of which it continues to deploy capital. Recently, the board of directors increased its quarterly dividend 14% from 44 cents to 50 cents per share. Its net debt-to-capital ratio stands at 22.4X, lower than the industry's average of 35.1X. Its times interest earned stands at 15.9X, higher than the industry's average of 14.5X. Its solid liquidity position should instill investor’s confidence in the stock.
However, DFS’ provision for loan losses increased over the last few quarters due to higher net charge-offs, rise in reserve build, seasoning of newer vintages and constant supply-driven normalization in the consumer credit line.
Shares of DFS have rallied 20.4% in a year’s time, outperforming its industry’s growth of 6.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Other Stocks to Consider
Some other top-ranked stocks in the finance space are WEX Inc. (WEX - Free Report) , Cantaloupe Inc. (CTLP - Free Report) and SLM Corporation (SLM - Free Report) . WEX and Cantaloupe sport a Zacks Rank of 1, while SLM boasts a Zacks Rank of 2 at present.
WEX is a leading provider of payment processing and business solutions across a wide spectrum of sectors, including fleet, travel and healthcare. Over the past seven days, WEX has witnessed its 2022 earnings estimate move 1.6% north. WEX managed to beat on earnings in all its trailing four quarters, the average being 9.9%. WEX has a VGM Score of B.
Cantaloupe is a software and payments company, providing end-to-end technology solutions for the unattended retail market. CTLP’s earnings outpaced estimates in all the last four quarters, the average being 108.33%.
SLM Corporation is a bellwether in education finance in the United States with a market presence of more than 40 years. SLM’s earnings surpassed estimates in each of the last four quarters, the average being 34.38%. The Zacks Consensus Estimate for SLM’s 2022 earnings has moved 0.7% north in the past 30 days.
Shares of SLM have gained 4.1%, while the stocks of CTLP and WEX have lost 41.1% and 17.6%, respectively, in a year.