Discover Financial Services (NYSE:DFS) is a well-known credit card provider. Their well-regarded cashback program provides consumers with great value, and their stock looks to be a great value at current prices as well. It's up 44% YTD, but is still a bargain based on valuation and growth metrics.
Reasons To Consider Discover
- DFS stock is extremely inexpensive compared to peers. At a TTM P/E of only 8.02 and a PEG ratio of 0.75, Discover clocks in well below the consumer finance industry average P/E of 11.48 and PEG of 1.09. American Express Company (NYSE:AXP), for example, has a P/E of 13.93 and a PEG ratio of 1.17. Discover's definitely one of the cheaper credit card stocks.
- Discover also has very strong growth metrics. EPS growth on a TTM basis is 41% and 5-year historical EPS growth is 12.43%. Cash flow growth over the past five years has been an impressive 12.33%. (Again, compare to American Express: 5-year cash flow growth of only 5.87%).
- Discover's balance sheet and margins are fairly strong for the industry as well. Debt/Equity is 207%, compared to 419% for the consumer finance industry (304% for American Express). Discover's gross margin, at 49%, is significantly higher than the industry average of 36%. Operating margin and profit margin are similarly above industry averages.
- Last quarter's earnings report was in-line with consensus estimates. The previous five were earnings beats.
- Analysts are bullish. Of 24 firms covering Discover, 9 have a "strong buy" recommendation, 8 have a "buy" recommendation, and 7 have 'hold" recommendation. None have "reduce" or "sell" recommendations.
- Discover does has a dividend, but at 1.2% yield, it won't blow anyone away. However, management is projecting increased dividends in the future, meaning investors should receive a solid yield-on-cost in the future.
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