Why You Should Hold Discover Financial (DFS) in Your Portfolio
Discover Financial Services DFS remains well-poised for growth on the back of improved net interest income, strong segmental performances and a strong financial position.
Zacks Rank & Price Performance
Discover Financial carries a Zacks Rank #3 (Hold) at present.
The stock has gained 4.4% in the past six months against the industry’s 5.6% decline. The Finance sector rallied 6.3%, while the S&P 500 composite index dipped 0.2% in the same time frame.
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Favorable Style Score
DFS is positioned well for progress, evident from its VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three factors.
Decent Earnings Surprise History
Discover Financial’s earnings beat estimates in three of the trailing four quarters and missed the mark once, the average being 5.26%.
Solid Return on Equity
The return on equity of DFS was at 34.9% as of Sep 30, 2022, way higher than the industry figure of 18.5%. This reflects its efficiency in utilizing shareholders’ funds.
Business Tailwinds
Revenues of Discover Financial continue to benefit on the back of an improved net interest income. Increased average receivables coupled with better net interest margin drives the net interest income of DFS. Management expects the payment rate to decline in the second half of 2023, which should provide an impetus to receivable growth.
New account growth contributes to the loan growth of Discover Financial. Meanwhile, the non-interest income of DFS is aided by improved loan fee income and discount or interchange revenue.
Solid performances of the Digital Banking and Payment Services segments also drive the top-line growth of Discover Financial. While growing net interest income benefits the Digital Banking segment, improved transaction processing revenues stemming from higher PULSE and Diners Club volume provide an impetus to the Payment Services segment.
DFS remains quite active in devising enhanced technology solutions either through using in-house resources or resorting to third-party vendors for technology services related to the cloud, telecommunications, hardware and operating systems. An advanced digital suite tends to reduce the operating costs of a company and provide respite to margins. Last year’s partnerships of Discover Financial with International Business Machines Corporation’s IBM services business IBM Consulting and vendor management platform provider TYDEi bear testament to its efforts of upgrading digital capabilities.
A strong financial position backed by growing cash reserves paves the way for DFS to undertake significant business investments and tactically deploy capital. In April 2022, management sanctioned a 20% dividend hike in the quarterly dividend.
Stocks to Consider
Some better-ranked stocks in the Finance space are Blackstone Secured Lending Fund BXSL and First Industrial Realty Trust, Inc. FR. While Blackstone Secured Lending sports a Zacks Rank #1 (Strong Buy), First Industrial Realty carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Blackstone Secured Lending’s earnings surpassed estimates in three of the trailing four quarters and missed the mark once, the average being 8.20%. The Zacks Consensus Estimate for BXSL’s 2023 earnings suggests an improvement of 22.4%, while the same for revenues suggests growth of 22.2% from the corresponding year-ago estimates. The consensus mark for BXSL’s 2023 earnings has moved 26.2% north in the past 60 days.
The bottom line of First Industrial Realty beat estimates in each of the trailing four quarters, the average surprise being 4.17%. The Zacks Consensus Estimate for FR’s 2023 earnings suggests an improvement of 6.7%, while the same for revenues suggests growth of 8.6% from the corresponding year-ago estimates. The consensus mark for FR’s 2023 earnings has moved 1.3% north in the past 30 days.
Shares of Blackstone Secured Lending and First Industrial Realty have gained 0.6% and 1.6%, respectively, in the past six months.
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Discover Financial Services (DFS) : Free Stock Analysis Report
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First Industrial Realty Trust, Inc. (FR) : Free Stock Analysis Report
Blackstone Secured Lending Fund (BXSL) : Free Stock Analysis Report
