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7 Reasons to Hold Discover Financial Services in Portfolio

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Estimates for Discover Financial Services (DFS - Free Report) have been revised upward over the past 60 days, reflecting the brokers’ confidence in the stock. The stock has seen the Zacks Consensus Estimate of $7.64 for 2018 being moved north by 0.4%.

Discover Financial Services, a direct banking and payment services company in the United States, provides Discover-branded credit cards and other consumer products and services to customers. Shares of this Zacks Rank #3 (Hold) company have rallied 26.82% in a year’s time, outperforming the industry’s growth of 13.07%.


 

The stock carries a favorable Value Score of B.

Now let’s focus on the factors that make Discover Financial Services stock an investor favorite.

Increasing Top Line: Discover Financial Services has been witnessing strong revenue growth riding on the strength of solid card sales. The company is expected to retain its revenue momentum in the future, backed by its solid market position as well as attractive core business.

Strong Performance of the Direct Banking Business: Banking on significant diversification benefits, the company has experienced a strong performance over the past few years. Growing volume of loans will help consolidate the segment’s revenue base.

Rising Card Sales Volume: Discover Financial Services has witnessed a solid card sales volume in the past few quarters and boasts a major issuer in the credit card industry in the United States. It can be expected that the investments in marketing and business developments would prove to be accretive to the company’s card account growth as well as card sales volumes.

Capital Management: Having implemented capital-boosting initiatives, Discover Financial Services has been able to achieve a good capital base. The cash position enables efficient deployment of capital through share repurchases, increasing dividend payouts as well as acquisitions. The company’s dividend has witnessed a five-year CAGR of 7.8% and currently yields 1.83%, better than the industry average of 1.27%. This makes the stock an attractive pick for yield-seeking investors.

Also, the company’s strong financial performance is anticipated to continue driving investors’ confidence in the stock.

Profitability: The return-on-equity (ROE) of 20.97% compares favorably with the industry average of 8.97%, underlining the company’s growth potential. This shows the company’s efficient usage of its shareholders’ funds.

Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $7.66, representing a year-over-year increase of 28% on 8.4% higher revenues of $10.7 billion.

For 2019, the consensus estimate for earnings per share stands at $8.40 on revenues of $11.4 billion, translating into a respective 9.60% and 5.86% year-over-year rise.

The expected long-term earnings growth is pegged at 10.5%.

Positive Earnings Surprise History: The company’s earnings surprise history shows estimate beat in three of the trailing four quarters with an average positive surprise of 1.15%.

Stocks to Consider

Some better-ranked stocks are Enova International, Inc. (ENVA - Free Report) , EZCORP, Inc. (EZPW - Free Report) and SLM Corporation (SLM - Free Report) .

Enova International, a technology and analytics company, which provides online financial services, pulled of an average four-quarter positive earnings surprise of 38.31%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EZCORP provides pawn loans to its customers. The company delivered an average four-quarter beat of 34.54%. It carries a Zacks Rank #2 (Buy).

SLM Corporation is a saving, planning and paying for college company in the United States. It came up with an average four-quarter beat of 3.13%. The company holds a Zacks Rank of 2.

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