On Sep 24 , shares of credit card issuer Discover Financial ServicesDFS slumped to a 52-week low of $50.86. Over the past one year, Discover Financial's shares have delivered a negative return of around 19.3%, which is worse than the S&P 500 loss of 3.3%.
So What Pushed the Shares Down?
The company's profits are being drained by higher-than-expected advertising and marketing expenditure. Going forward, the company will have to seriously consider expense reduction.
Also, Discover Financial's Payments Service segment has been a laggard over the past few quarters. The segment witnessed a decrease in pre-tax income in the first half of 2015 on low volumes. Moreover, the loss of a third-party issuing deal in network partners, increase in expenses and a challenging debit environment are likely to weigh on the segment's performance ahead.
Additionally, Discover Financial faces serious litigation issues that not only tarnish its goodwill but also force it to dish out a large sum of money, and thereby weigh heavily on its financials.
During the last reported quarter, the company's earnings per share could beat estimates by only a penny but decreased year over year due to sluggish card sales and loan growth. Expenses associated with the closure of the Home Loans business and higher regulatory and compliance costs led to the earnings decline.
Discover Financial carries a Zacks Rank #3 (Hold). Other players carrying a better Zacks Rank are Regional Management Corp. RM , Springleaf Holdings, Inc. LEAF and Visa Inc. V . While both Regional Management and Springleaf carry a Zacks Rank #1 (Strong Buy), Visa carries a Zacks Rank #2 (Buy).