News

Discover Financial Services DFS has been benefiting on the back of a growing loan portfolio resulting in higher net interest income. Strong growth in PULSE volume, collaborations and sound cash reserves also act as tailwinds for the stock.

Zacks Rank & Price Performance

Discover Financial carries a Zacks Rank #3 (Hold) at present.

The stock has gained 28.1% in the past three months compared with the industry’s 31.5% growth. The Finance sector rallied 15.2%, while the S&P 500 Composite Index increased 11.1% in the same time frame.

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Robust Growth Prospects

The Zacks Consensus Estimate for DFS’s 2024 earnings is pegged at $12.55 per share, indicating 2% growth from the 2023 estimate. The consensus mark for revenues is pinned at $16.6 billion, indicating an increase of 5.5% from the 2023 estimate.

Northbound Estimate Revision

The Zacks Consensus Estimate for 2024 earnings has moved north 0.8% in the past 60 days.

Solid Return on Equity

DFS’s efficiency in utilizing shareholders’ funds can be substantiated by its return on equity of 27.2% as of Sep 30, 2023, which remains higher than the industry’s average of 12.3%.

Business Tailwinds

The top line of Discover Financial is aided by growing net interest income, attributable to increased average receivables. Net interest income climbed 21% year over year in the first nine months of 2023. New account growth contributes to the loan growth of Discover Financial.

Higher loan fee income coupled with improved discount/interchange revenues drives the non-interest income of DFS. Loan fee income advanced 21% year over year in the first nine months of 2023 while discount/interchange revenues rose 5% in the same time frame.

The strong performance of the Payment Services segment also contributes to the performance of Discover Financial. Improved transaction processing revenues derived from increased PULSE and Diners Club volume drive the unit’s revenues.

DFS remains quite active to devise 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 upgraded digital suite brings down the operating costs of a company and provides some respite to margins.

In August 2023, the PULSE unit strengthened its ties with the global analytics software provider, FICO, to provide upgraded technology for the easy detection of evolving frauds by financial institutions. Discover Financial also came up with a cloud-based network tokenization platform in October 2023 that enables companies to use stored payment tokens within their payment experience.

Discover Financial is seeking options to divest its Student Loans portfolio, which continues to grapple with regulatory headwinds. It will stop accepting student loan applications commencing from Feb 1, 2024. The move is in line with DFS’s intensified focus on growing its core banking products.

It boasts a solid financial stand, substantiated by expanding cash reserves. Cash and investment securities grew 20% year over year as of Sep 30, 2023. The financial strength imparts the power to pursue business investments and return capital to shareholders.

Stocks to Consider

Some better-ranked stocks in the Finance space are Equity Commonwealth EQC, Amalgamated Financial Corp. AMAL and First Industrial Realty Trust, Inc. FR. While Equity Commonwealth sports a Zacks Rank #1 (Strong Buy) at present, Amalgamated Financial and First Industrial Realty carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Equity Commonwealth’s earnings surpassed estimates in three of the trailing four quarters and missed the mark once, the average surprise being 24.79%. The Zacks Consensus Estimate for EQC’s 2024 earnings indicates an improvement of 2.2% from the 2023 estimate. The consensus mark for EQC’s 2024 earnings has moved 25.3% north in the past 60 days.

Amalgamated Financial's earnings beat estimates in three of the trailing four quarters and met the mark once, the average surprise being 5.88%. The Zacks Consensus Estimate for AMAL’s 2024 earnings indicates an improvement of 3.7%, while the consensus mark for revenues implies growth of 4.9% from the corresponding 2023 estimates. The consensus mark for AMAL’s 2024 earnings has moved 1% north in the past 30 days.

First Industrial Realty’s earnings outpaced estimates in each of the last four quarters, the average surprise being 3.02%. The Zacks Consensus Estimate for FR’s 2024 earnings indicates an improvement of 7.4%, while the consensus mark for revenues suggests growth of 6.7% from the corresponding 2023 estimates. The stock has witnessed two upward earnings estimate revisions compared with none for 2024 over the past 60 days.

Shares of Equity Commonwealth, Amalgamated Financial and First Industrial Realty have risen 3.9%, 59.4% and 14.7%, respectively, in the past three months.

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