Zacks Investment Research Downgrades Discover Financial Services (DFS) to Hold

Zacks Investment Research cut shares of Discover Financial Services (NYSE:DFS) from a buy rating to a hold rating in a report issued on Tuesday.

According to Zacks, “Discover Financial’s shares have gained against its industry’s decline in a year’s time. Moreover, it has witnessed its 2018 and 2019 earnings estimates move upward over the past 30 days. The company is well-poised for long-term growth on the back of a consistent rise in revenues. Its strong Direct Banking business has significantly supported the top line. The loan and Payment Services transaction dollar volume growth also look promising. Card sales have been soaring over the past many years. Its efficient capital management is also impressive. However, the company has been incurring considerable expenses in order to compete with other credit card issuers, attract and retain customers as well as increase the card usage from the past quarters. Rising expenses and increase in debt level have been weighing on the company’s margins.”

Other analysts have also recently issued research reports about the company. Wells Fargo & Co lifted their target price on Discover Financial Services from $76.00 to $82.00 and gave the stock a market perform rating in a research report on Monday, October 1st. JPMorgan Chase & Co. upgraded Discover Financial Services from a neutral rating to an overweight rating in a research report on Tuesday, October 2nd. Bank of America lifted their target price on Discover Financial Services from $86.00 to $92.00 and gave the stock a buy rating in a research report on Friday, September 21st. Finally, Sandler O’Neill reiterated a buy rating and set a $87.00 target price on shares of Discover Financial Services in a research report on Friday, July 27th. Nine research analysts have rated the stock with a hold rating, fourteen have assigned a buy rating and one has assigned a strong buy rating to the stock. Discover Financial Services presently has an average rating of Buy and an average price target of $86.76.

Discover Financial Services stock opened at $74.94 on Tuesday. Discover Financial Services has a 1-year low of $63.31 and a 1-year high of $81.93. The company has a debt-to-equity ratio of 2.54, a quick ratio of 1.49 and a current ratio of 1.49. The firm has a market capitalization of $26.00 billion, a price-to-earnings ratio of 11.05, a price-to-earnings-growth ratio of 0.78 and a beta of 1.51.

Discover Financial Services (NYSE:DFS) last posted its quarterly earnings results on Thursday, July 26th. The financial services provider reported $1.91 earnings per share for the quarter, beating the Zacks’ consensus estimate of $1.88 by $0.03. Discover Financial Services had a return on equity of 24.25% and a net margin of 19.07%. The company had revenue of $2.60 billion for the quarter, compared to analysts’ expectations of $2.63 billion. During the same period last year, the firm earned $1.40 earnings per share. Discover Financial Services’s quarterly revenue was up 7.6% on a year-over-year basis. As a group, analysts anticipate that Discover Financial Services will post 7.83 earnings per share for the current fiscal year.

Discover Financial Services declared that its board has initiated a share buyback program on Thursday, July 19th that authorizes the company to buyback $3.00 billion in outstanding shares. This buyback authorization authorizes the financial services provider to buy up to 11.9% of its shares through open market purchases. Shares buyback programs are typically an indication that the company’s leadership believes its stock is undervalued.

The company also recently announced a quarterly dividend, which will be paid on Thursday, December 6th. Stockholders of record on Wednesday, November 21st will be given a dividend of $0.40 per share. This represents a $1.60 dividend on an annualized basis and a dividend yield of 2.14%. Discover Financial Services’s dividend payout ratio (DPR) is currently 26.76%.

In related news, Chairman David W. Nelms sold 30,000 shares of the firm’s stock in a transaction dated Monday, October 1st. The stock was sold at an average price of $77.16, for a total transaction of $2,314,800.00. Following the transaction, the chairman now owns 1,180,798 shares of the company’s stock, valued at $91,110,373.68. The transaction was disclosed in a filing with the SEC, which is accessible through this link. Also, EVP Carlos Minetti sold 3,750 shares of the firm’s stock in a transaction dated Tuesday, September 4th. The stock was sold at an average price of $78.21, for a total value of $293,287.50. Following the transaction, the executive vice president now directly owns 133,852 shares in the company, valued at approximately $10,468,564.92. The disclosure for this sale can be found here. In the last three months, insiders have sold 101,250 shares of company stock worth $7,663,313. Corporate insiders own 0.81% of the company’s stock.

Hedge funds and other institutional investors have recently added to or reduced their stakes in the stock. Sandy Spring Bank grew its holdings in shares of Discover Financial Services by 181.5% during the second quarter. Sandy Spring Bank now owns 1,689 shares of the financial services provider’s stock worth $119,000 after buying an additional 1,089 shares during the last quarter. Private Capital Group LLC grew its holdings in shares of Discover Financial Services by 8,258.3% during the first quarter. Private Capital Group LLC now owns 2,006 shares of the financial services provider’s stock worth $144,000 after buying an additional 1,982 shares during the last quarter. Migdal Insurance & Financial Holdings Ltd. grew its holdings in shares of Discover Financial Services by 8,341.7% during the second quarter. Migdal Insurance & Financial Holdings Ltd. now owns 2,026 shares of the financial services provider’s stock worth $143,000 after buying an additional 2,002 shares during the last quarter. Edge Wealth Management LLC purchased a new position in shares of Discover Financial Services during the second quarter worth about $155,000. Finally, Legacy Advisors LLC grew its holdings in shares of Discover Financial Services by 2,329.9% during the third quarter. Legacy Advisors LLC now owns 2,357 shares of the financial services provider’s stock worth $180,000 after buying an additional 2,260 shares during the last quarter. 85.76% of the stock is currently owned by hedge funds and other institutional investors.

About Discover Financial Services

Discover Financial Services, through its subsidiaries, operates as a direct banking and payment services company in the United States. The Direct Banking segment offers Discover-branded credit cards to individuals; and other consumer products and services, including private student loans, personal loans, home equity loans, and other consumer lending, as well as deposit products, such as certificates of deposit, money market accounts, savings accounts, checking accounts, and individual retirement arrangement certificates of deposit.

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