Discover Financial Services (DFS) and Its Rivals Critical Comparison

Discover Financial Services (NYSE: DFS) is one of 27 publicly-traded companies in the “Consumer Lending” industry, but how does it contrast to its competitors? We will compare Discover Financial Services to similar companies based on the strength of its profitability, institutional ownership, valuation, earnings, risk, analyst recommendations and dividends.

Profitability

This table compares Discover Financial Services and its competitors’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Discover Financial Services 20.91% 21.28% 2.46%
Discover Financial Services Competitors -28.26% -17.28% 0.63%

Risk and Volatility

Discover Financial Services has a beta of 1.47, suggesting that its stock price is 47% more volatile than the S&P 500. Comparatively, Discover Financial Services’ competitors have a beta of 1.49, suggesting that their average stock price is 49% more volatile than the S&P 500.

Institutional and Insider Ownership

85.5% of Discover Financial Services shares are held by institutional investors. Comparatively, 77.5% of shares of all “Consumer Lending” companies are held by institutional investors. 1.0% of Discover Financial Services shares are held by company insiders. Comparatively, 15.2% of shares of all “Consumer Lending” companies are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Earnings & Valuation

This table compares Discover Financial Services and its competitors top-line revenue, earnings per share and valuation.

Gross Revenue EBITDA Price/Earnings Ratio
Discover Financial Services $7.17 billion N/A 11.39
Discover Financial Services Competitors $564.84 million $92.07 million 16.96

Discover Financial Services has higher revenue, but lower earnings than its competitors. Discover Financial Services is trading at a lower price-to-earnings ratio than its competitors, indicating that it is currently more affordable than other companies in its industry.

Analyst Recommendations

This is a summary of current recommendations for Discover Financial Services and its competitors, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 1 7 16 0 2.63
Discover Financial Services Competitors 154 647 1040 51 2.52

Discover Financial Services presently has a consensus target price of $73.63, indicating a potential upside of 11.61%. As a group, “Consumer Lending” companies have a potential upside of 50.78%. Given Discover Financial Services’ competitors higher possible upside, analysts plainly believe Discover Financial Services has less favorable growth aspects than its competitors.

Dividends

Discover Financial Services pays an annual dividend of $1.40 per share and has a dividend yield of 2.1%. Discover Financial Services pays out 24.2% of its earnings in the form of a dividend. As a group, “Consumer Lending” companies pay a dividend yield of 1.6% and pay out 25.6% of their earnings in the form of a dividend. Discover Financial Services has raised its dividend for 6 consecutive years. Discover Financial Services is clearly a better dividend stock than its competitors, given its higher yield and lower payout ratio.

Summary

Discover Financial Services beats its competitors on 9 of the 14 factors compared.

Discover Financial Services Company Profile

Discover Financial Services (DFS) is a direct banking and payment services company. The Company is a bank holding company, as well as a financial holding company. The Company operates through two segments: Direct Banking and Payment Services. It provides direct banking products and services, and payment services through its subsidiaries. It offers its customers credit card loans, private student loans, personal loans, home equity loans and deposit products. The Company’s Direct Banking segment includes consumer banking and lending products, specifically Discover-branded credit cards issued to individuals and small businesses on the Discover Network and other consumer banking products and services. The Company’s direct banking offers credit cards, student loans, personal loans, home equity loans, and other consumer lending and deposit products. The Payment Services segment includes PULSE, Diners Club and the Company’s Network Partners business.

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