On Mar 18, 2013, the shares of
Discover Financial Services
) hit a 52-week high of $44.43 propelled by its initiatives to
boost shareholder value along with the impetus provided by the
new growth initiatives revealed in the investor conference held
Last week, the board of Discover Financial approved a new
share repurchase program worth $2.4 billion. The company's
capital plan for 2013 also includes a proposal to increase the
quarterly dividend to 20 cents per share from 14 cents paid
currently. These plans are aimed at maximizing shareholder value
by returning surplus capital.
DFS also plans to expand its market presence through product
launches, extension of distribution channels and partnerships.
The company recently announced affiliations with Cadence Bank and
Interswitch Limited to boost card acceptances and transaction
Moreover, in the investor conference, Discover Financial
announced its plans to enter the checking and home equity
businesses in 2013. The company will also launch a new banking
platform during the year and expand the PULSE network to include
all debit transactions.
Discover Financial has set a long-term growth rate target of
2%-5% for card receivables, 5%-10% for other consumer lending and
over 10% for payment volume. Further, the company wants to
achieve return on equity of 15% and Tier 1 common ratio of about
9.5% in the long term.
Discover Financial has a history of outperforming estimates.
The company witnessed positive surprises in 9 out of the past 10
quarters. The average surprise in the past four quarters was
The long-term expected earnings growth rate for Discover
Financial is 8.98%.
On Dec 20, 2012, the company reported fourth-quarter 2012
operating earnings per share of $1.07, lagging the Zacks
Consensus Estimate of $1.13. However, earnings surpassed the
year-ago quarter's earnings of 95 cents per share.
The valuation for Discover Financial looks reasonable.
Although the shares are currently trading at a premium on both
price-to-book and forward price-to-earnings basis, the return on
equity of 25.7% is higher than the peer group average of 21.8%.
The 1-year return for the stock came in at 38.03%, much above the
S&P 500's return of 10.53%.
Discover Financial currently carries a Zacks Rank #2 (Buy).
Other companies worth considering in the financial sector are
Encore Capital Group, Inc.
Global Payments Inc.
Total System Services, Inc.
), which also carry a Zacks Rank #2 (Buy).
DISCOVER FIN SV (DFS): Free Stock Analysis
ENCORE CAP GRP (ECPG): Free Stock Analysis
GLOBAL PAYMENTS (GPN): Free Stock Analysis
TOTAL SYS SVC (TSS): Free Stock Analysis
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