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Discover Financial Services (DFS)
:DFS
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Discover Financial Services
(NYSE:DFS)74Outperform
Positive Factors
Credit Trends
Credit has begun to show improvement, as card delinquency rate in 4Q was down y/y for the first time in a while, and management now sees credit losses to trend downward.
Merger and Valuation
Valuation of DFS shares is positively influenced by the likely completion of its merger with Capital One.
Negative Factors
Regulatory Challenges
Discover faced regulatory investigations, which impacted its account growth strategy.
Discover Financial Services (DFS) vs. S&P 500 (SPY)
Market Cap
$44.99B
Dividend Yield1.47%
Average Volume (3M)1.82M
Price to Earnings (P/E)10.1
Beta (1Y)1.36
Revenue Growth15.25%
EPS Growth45.76%
CountryUS
Employees21,100
SectorFinancial
Sector Strength93
IndustryCredit Finance
Share Statistics
EPS (TTM)15.56
Shares Outstanding251,604,130
10 Day Avg. Volume1,891,467
30 Day Avg. Volume1,820,854
Financial Highlights & Ratios
PEG Ratio0.22
Price to Book (P/B)N/A
Price to Sales (P/S)3.68
Price to Cash Flow (P/CF)6.00
P/FCF Ratio4.00
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$208.11Price Target Upside16.37% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering12
Discover Financial Services Business Overview & Revenue Model
Company DescriptionDiscover Financial Services (DFS) is a leading financial services company based in the United States, primarily known for its credit card offerings. The company operates in various sectors, including consumer banking, payment services, and loans. Discover provides a range of financial products and services, such as credit cards, personal loans, student loans, and deposit products, through its Discover Bank subsidiary. Additionally, Discover operates a global payments network, Discover Network, which includes partnerships with merchants and financial institutions worldwide.
How the Company Makes MoneyDiscover Financial Services generates revenue through several key streams. The primary source of income comes from interest income on outstanding credit card balances, personal loans, and student loans. The company also earns revenue from transaction fees collected from merchants when consumers use Discover cards for purchases on the Discover Network. Additionally, Discover makes money through service fees, including late payment fees, annual fees, and foreign transaction fees associated with its credit card products. Furthermore, Discover Financial Services benefits from its deposit products, such as savings accounts and certificates of deposit, which provide a stable source of funding. Strategic partnerships and alliances with other financial institutions also play a significant role in expanding Discover's reach and enhancing its earnings potential.
Discover Financial Services Financial Statement Overview
Summary
Discover Financial Services demonstrates strong financial performance with significant revenue growth and efficient cost management. The balance sheet reflects a strong equity position and no debt, enhancing financial stability. Cash flow remains strong, though there are indications of volatility in investing and financing activities. Overall, the company is on a stable financial trajectory with room for further improvement in profitability.Income Statement
Discover Financial Services has shown strong revenue growth with a significant increase from $13.34 billion in 2022 to $20.02 billion in 2024. The EBIT margin is robust at 88.3% for 2024, indicating effective cost management and operational efficiency. However, the net profit margin has decreased from 32.8% in 2022 to 22.7% in 2024, suggesting increased costs or other financial pressures impacting net income.75
Positive
Balance Sheet
The company's balance sheet shows a strong equity position with stockholders' equity increasing to $17.93 billion in 2024. The debt-to-equity ratio is healthy, moving to 0, indicating no debt and a reduction from previous years. Return on Equity (ROE) is solid at 25.3% in 2024, demonstrating effective use of equity for generating profit. The equity ratio remains stable, reflecting a sound capital structure.80
Positive
Cash Flow
Operating cash flow has remained robust, although it decreased slightly from $8.56 billion in 2023 to $8.43 billion in 2024. The free cash flow growth rate is positive, with free cash flow reaching $8.43 billion in 2024. However, fluctuations in investing and financing cash flows indicate potential volatility in cash management strategies.70
Positive
| Breakdown | ||||
| Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 20.02B | 9.84B | 13.34B | 12.09B | 11.09B | Gross Profit |
| 20.02B | 9.84B | 13.34B | 12.09B | 11.09B | EBIT |
| 17.68B | 5.11B | 7.61B | 7.06B | 1.44B | EBITDA |
| 0.00 | 0.00 | 6.28B | 7.59B | 0.00 | Net Income Common Stockholders |
| 4.54B | 2.94B | 4.37B | 5.42B | 1.14B |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 23.10B | 11.69B | 10.56B | 20.25B | 28.36B | Total Assets |
| 147.64B | 151.52B | 131.63B | 110.24B | 112.89B | Total Debt |
| 16.25B | 21.33B | 20.11B | 20.23B | 21.24B | Net Debt |
| 7.78B | 9.65B | 11.25B | 11.48B | 7.68B | Total Liabilities |
| 129.71B | 136.69B | 117.04B | 96.83B | 21.24B | Stockholders Equity |
| 17.93B | 14.83B | 14.59B | 13.41B | 10.88B |
| Cash Flow | Free Cash Flow | |||
| 8.43B | 8.26B | 6.90B | 5.83B | 5.93B | Operating Cash Flow |
| 8.43B | 8.56B | 7.14B | 6.02B | 6.20B | Investing Cash Flow |
| -3.75B | -21.49B | -25.64B | 40.00M | 1.51B | Financing Cash Flow |
| -7.90B | 15.76B | 16.06B | -8.32B | -1.08B |
Discover Financial Services Technical Analysis
Negative
178.83
Price Trends
187.65
Negative
175.79
Positive
152.97
Positive
Market Momentum
-0.69
Positive
36.90
Neutral
33.80
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DFS, the sentiment is Negative. The current price of 178.83 is below the 20-day moving average (MA) of 194.04, below the 50-day MA of 187.65, and above the 200-day MA of 152.97, indicating a neutral trend. The MACD of -0.69 indicates Positive momentum. The RSI at 36.90 is Neutral, neither overbought nor oversold. The STOCH value of 33.80 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for DFS.
Discover Financial Services Risk Analysis
Discover Financial Services disclosed 46 risk factors in its most recent earnings report. Discover Financial Services reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Discover Financial Services Peers Comparison
Overall Rating
UnderperformOutperform
Sector (64)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
75 Outperform | $21.81B | 6.56 | 21.10% | 1.72% | 19.73% | 65.57% | |
74 Outperform | $44.99B | 10.10 | 25.30% | 1.47% | 15.25% | 45.76% | |
73 Outperform | $136.34B | 12.17 | 6.08% | 2.86% | 8.20% | 49.26% | |
72 Outperform | $324.49B | 13.28 | 9.18% | 2.19% | 13.06% | 4.94% | |
72 Outperform | $70.51B | 15.96 | 7.81% | 1.22% | 9.06% | -3.02% | |
71 Outperform | $199.15B | 20.22 | 33.47% | 0.93% | 10.12% | 24.93% | |
64 Neutral | $14.34B | 10.61 | 9.28% | 4.07% | 18.04% | -9.54% |
* Financial Sector Average
Performance Comparison
DFS
Discover Financial Services
178.83
61.61
52.56%
AXP
American Express
283.47
67.42
31.21%
BAC
Bank of America
42.67
7.89
22.69%
COF
Capital One Financial
184.90
51.17
38.26%
C
Citigroup
72.35
16.97
30.64%
SYF
Synchrony Financial
56.11
15.64
38.65%
Discover Financial Services Earnings Call Summary
Earnings Call Date: Jan 22, 2025 | % Change Since: -9.14% | Next Earnings Date: Apr 16, 2025
Earnings Call Sentiment Positive
The earnings call presented a strong performance for Discover Financial Services with significant net income growth and strategic gains from the student loan portfolio sale. Despite challenges such as a decline in card sales and increased operating expenses, the company showed resilience with improvements in credit performance and successful deposit growth. The focus on risk management and compliance improvements also underscores a positive trajectory towards the pending merger with Capital One.Highlights
Strong Net Income Growth
Reported net income of $1.3 billion in Q4 2024, a significant increase from $366 million in the same period last year.
Successful Sale of Student Loan Portfolio
Completion of student loan portfolio sale resulted in a gain of $381 million, providing an overall earnings benefit of $1.3 billion.
Net Interest Margin Expansion
Net interest margin ended the quarter at 11.96%, up 98 basis points from the prior year, driven by product mix and investment of sales proceeds.
Personal Loans and Deposit Growth
Personal loans increased by 5% year-over-year, and average consumer deposits were up 10% year-over-year, enhancing funding mix.
Improvement in Credit Performance
Total net charge-offs were 4.64%, 53 basis points higher than the prior year but down 22 basis points from the prior quarter. Card net charge-offs declined for the third consecutive quarter.
Lowlights
Card Sales Decline
Discover card sales were down 3% compared to the prior year, primarily due to credit tightening actions.
Incremental Charges and Regulatory Penalties
Approximately $60 million of incremental charges related to card product misclassification identified, with an increased accrual for potential regulatory penalties by $90 million.
Higher Operating Expenses
Total operating expenses increased by $67 million or 4% year-over-year, driven by higher compensation costs and professional fees related to merger and integration expenses.
Company Guidance
In the fourth quarter of 2024, Discover Financial Services reported significant financial performance improvements, with net income reaching $1.3 billion, up from $366 million in the same period last year. This growth was driven by a $707 million decline in provision expenses, a $381 million gain from the sale of the student loan portfolio, and a $162 million increase in net interest income. The company's net interest margin ended the quarter at 11.96%, up 98 basis points from the prior year, while consumer deposits grew by 10% year-over-year, reaching 72% of total funding. Despite a 3% decline in card sales due to credit tightening, personal loans increased by 5%. The total net charge-off rate for the year was 4.8%, with improvements in card and personal loan portfolios. Looking ahead to 2025, Discover anticipates loan growth to align with pre-pandemic norms and expects to manage expenses conservatively as it prepares for its pending merger with Capital One.Discover Financial Services Corporate Events
M&A TransactionsShareholder Meetings
Discover Financial Services Merger Approved by Stockholders
Positive
Feb 18, 2025
On February 18, 2025, Discover Financial Services held a special meeting where stockholders approved the proposed merger with Capital One Financial Corporation. Over 82% of Discover’s outstanding shares were represented, with more than 99.3% voting in favor of the merger. This approval marks a significant step in merging the two companies, promising enhanced service offerings across consumer, small business, and merchant sectors. The merger is set to complete in early 2025, pending regulatory approvals, further solidifying the companies’ market positions and potentially benefiting stakeholders.
Financial Disclosures
Discover Financial Releases January 2025 Credit Stats
Neutral
Feb 14, 2025
Discover Financial Services released its monthly credit card charge-off and delinquency statistics for the period ending January 31, 2025. The data shows trends in the company’s credit card portfolio, including metrics such as net principal charge-off rates and delinquency rates, which can indicate the health of its credit operations. The statistics reveal fluctuations in these rates, partly attributed to external factors like disaster relief efforts. These insights are crucial for stakeholders to understand Discover’s credit performance and potential impacts on its financial stability and reputation in the sector.
Executive/Board Changes
Discover Financial Awards $1.5M to Interim CEO
Positive
Dec 27, 2024
Discover Financial Services announced a one-time cash award of $1.5 million to J. Michael Shepherd, the Interim CEO and President, recognizing his leadership efforts. The award is set to be paid by the end of December 2024, reflecting the company’s appreciation for Shepherd’s significant contributions during his interim tenure.
Executive/Board ChangesM&A Transactions
Discover Financial Services Accelerates Bonuses Ahead of Merger
Neutral
Dec 13, 2024
Discover Financial Services has approved the acceleration of certain bonuses and stock award payments for employees, including executives, in anticipation of its merger with Capital One Financial Corporation. This decision aims to mitigate tax impacts on employees and the company, with conditions requiring repayment under certain employment termination scenarios before specific dates.
Financial Disclosures
Discover Financial Services Reports Credit Card Statistics
Neutral
Dec 13, 2024
Discover Financial Services has released its monthly credit card charge-off and delinquency statistics, highlighting key metrics for the 24 months ending November 30, 2024. The statistics indicate variations in credit performance between the total credit card portfolio and those loans securitized through Discover Card Trusts, reflecting differences in loan characteristics and calculation methodologies.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.