Discover Financial Services
(
DFS
) is a leading credit card issuer in the United States and an
electronic payment services company. The firm offers credit cards,
personal and student loans, and deposit products. It competes with
other financial firms like Capital One (
COF
),
American Express
(
AXP
), Visa (
V
) and MasterCard (
MA
).
We have
$20.99 price estimate for Discover
Financial,
which is around 10-15% below market price. Below we look at two key
business divisions for Discover Financial that have significant
impact on its stock price.
Discover Financial's 2 Most Important Divisions - A
Snapshot
1) Discover Credit Cards - 56% of the company's stock
value
Discover currently has the #4 position in the U.S.
payment-card network, after Visa, MasterCard and American
Express. Discover earns a net interest income on the spread
between the rate at which it raises funds in the form of debt and
customer deposits, and the rate at which it extends credit to
credit card customers. In 2010, Discover earned a net interest
yield of 9.5% on about $45.6 billion credit card loans outstanding.
Going forward, we expect Discover's credit card loans outstanding
to increase to $64 billion by the end of our forecast period, while
its net interest yield will likely remain stable at the current
value.
See the top forecasts for the Discover credit cards
2) Discover Card Transaction & Execution Fees - 19%
of the company's stock value
Discover charges discount and interchange fees to merchants that
have entered into card acceptance agreements with Discover for
processing credit card purchases. These fees are typically charged
as a percentage of total purchase volume on Discover branded credit
cards. In addition to these, Discover also charges merchant fees
per transaction for various services including manual authorization
of transactions and delivery of hardcopy statements. In 2010,
Discover generated about $1.1 billion in revenues from card
transaction and execution fees. Going forward, we expect 3-5%
annual growth in revenues over our forecast period.
See the top forecasts for the Discover card transaction and
execution fees
See our full analysis for Discover Financial stock
here