Discover Financial Services
(
DFS
) reported its 10th straight quarter with a positive earnings
surprise late last month, as third quarter 2012 earnings surpassed
the Zacks Consensus Estimate by 17.8%. This Zacks #1 Rank (Strong
Buy) has watched most analysts revise their earnings estimates
higher in the past week, boosting Zacks Consensus Estimates for
this year and next.
Furthermore, with a price-to-earnings (P/E) ratio of just 9.0, this
Zacks #1 Rank (Strong Buy) direct banking and payment services
company is a true value pick.
Strong Third Quarter Performance
On September 27, Discover Financial Services reported third quarter
2012 earnings of $1.21 per share, beating the Zacks Consensus
Estimate by 17.8% and advancing from last year by 2.5%.
Total revenue (net of interest expense) increased 9.8% year over
year to $1.96 billion. Net interest income improved 11% to $1.37
billion. Card sales volume advanced 4% from last year.
The quarter saw historic lows for credit card loan delinquencies
and net charge-offs. The delinquency rate for loans over 30 days
past due was 1.81% and the net charge-off rate was 2.43%.
Provision for loan losses increased 26% year over year to $126
million.
During the reported quarter, Discover Financial Services
repurchased 10 million shares for $350 million under its $2 billion
share repurchase program.
Positive Earnings Estimate Revisions
Over the last seven days, the Zacks Consensus Estimate for 2012
rose 6.4% to $4.51 as 13 of 17 estimates were revised upward. This
represents a year-over-year increase of approximately 11%.
For 2013, the Zacks Consensus Estimate is up 5.1% to $4.36 in the
same timeframe, as 13 of 17 estimates moved higher.
Attractive Valuation
Along with a very attractive P/E multiple, Discover Financial
Services has a price-to-book (P/B) ratio as low as 2.3 (a P/B ratio
under 3.0 and P/E ratio below 15.0 indicate value.)
Moreover, the company has a 1-year return on equity (ROE) of 26.1%,
higher than its peer group average of 21.0%.
Based in Riverwoods, Illinois and founded in 1986, Discover
Financial Services is a credit card issuing and electronic payment
services company in the United States. In March 2009, Discover
became a bank holding company under the Bank Holding Company Act of
1956 and a financial holding company under the Gramm-Leach-Bliley
Act in connection with its participation in the U.S. Treasury's
Capital Purchase Program. The company offers its products and
services with acceptance in more than 185 countries and
territories.
With a market capitalization of $20.5 billion and 11,650 employees,
it competes with MasterCard Inc. (
MA
) and Visa Inc. (
V
), among others.
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