Fri, Nov. 20, 12:48 PM
- The credit card sector is notable of late for strong asset growth, says analyst Eric Wasserstrom, but it's not resulting in net income growth expansion. RIsing marketing and rewards costs combining with higher provisions are to blame, he says, and higher interest rates will boost funding costs and constrain margins.
- Wasserstrom and team see net income growth for Capital One (NYSE:COF) of just 0-2% in 2016-17, and for Discover (NYSE:DFS) of 1-2%, with all of this coming from share repurchases.
- He's got a better outlook for Synchrony Financial (NYSE:SYF), which is his pick in the card space. Turning elsewhere, Goldman Sachs (NYSE:GS) - levered to the improving corporate M&A cycle - is his best idea.
Tue, Oct. 20, 4:28 PM
- Q3 net income of $612M or $1.38 per share vs. $644M and $1.37 one year ago.
- Direct Banking pretax income of $950M down 3% Y/Y, with higher expenses for anti-money laundering only party offset by lower loan loss provisions. Total loans of $70.1B up 4.1%. Personal loans up 12.3%, and private student loans up 3.2%. Net interest income up 3%, with NIM of 9.63% down 16 basis points.
- Payment Services pretax income of $24M down $4M from last year. Payment services transaction volume of $46B down 7% Y/Y. PULSE transaction dollar volume down 11%. Network Partners volume up 47%.
- $435M of stock bought back during quarter, cutting the float by 1.8%.
- Conference call at 5 ET
- Previously: Discover Financial Services beats by $0.05, misses on revenue (Oct. 20)
- DFS +0.5% after hours
Tue, Oct. 20, 4:24 PM
Mon, Oct. 19, 5:35 PM
Thu, Oct. 15, 5:21 PM
Mon, Oct. 5, 9:27 AM
- After a tough stretch for the stock - down more than 20% YTD - Discover (NYSE:DFS) trades at a relative P/E of 62% vs. the S&P 500, well below the long-term average of 70%, says analyst Kevin St. Pierre, upgrading to Outperform. His $69 price target is 33% above Friday's close.
- St. Pierre figures Discover is sitting on about $5.50 per share of excess capital above the target CET1 ratio of 11%.
- He also takes note of Discover's network - it has the same capacity as that of MasterCard and Visa, but is massively underutilized, says St. Pierre.
- He now has Outperform ratings on all of the card issuers. His favorites over the next 12 months are Capital One (NYSE:COF) and Synchrony Financial (NYSE:SYF), over the next two-three years DIscover, and American Express (NYSE:AXP) over the longer term.
- DFS +1.4% to $52.92 premarket.
Thu, Sep. 17, 8:02 AM
- Among the "recent themes" highlighted by CFO Mark Graf in his presentation, expect lower fee income in 2016 from the exit from mortgage originations this year, continued attrition in Protection Products (which stopped being sold in 2012), and the full-year impact of lost volume in Pulse.
- The efficiency ratio is on the rise this year (higher is worse), but still lower than most large banks. The 41.5% level for the trailing twelve months ended in Q2 is above 39.4% for 2014, and 38.8% in 2013. The long-term target is 38%.
- Well-seasoned loan performance is exceeding expectations - it allowed for a small reserve release in H1 vs. a build in 2014.
- Capital returns: Discover's (NYSE:DFS) CET 1 ratio of 14.4% in Q2 is 340 basis points or $2.5B above target.
- Presentation slides
Tue, Aug. 25, 10:43 AM
- Goldman Sachs analysts say the U.S. stock market correction has many more parallels with 1998 than 2008, which “suggest[s] a rebound ahead,” while predicting the S&P 500 will rise by 11% from current levels to reach 2,100 by year's end.
- The S&P fell 19% between July and August 1998, but "ultimately, the U.S. economy was relatively unaffected by overseas financial market gyrations in 1998, and we believe a similar situation will occur in 2015," Goldman says.
- The correlation between U.S. economic growth and Chinese growth is relatively low, Goldman says, estimating that a one percentage point drop in Chinese growth would translate into a 0.06 pp reduction in U.S. GDP.
- The best strategy for U.S. consumers, the bank advises, is to hold companies with high domestic revenues and avoid companies with high foreign sales.
- Goldman's list of the 25 most oversold stocks with high U.S. sales exposure: KMX, M, WFM, CHK, SWN, RRC, COG, PXD, OKE, MPC, NAVI, ETFC, LNC, BXP, KEY, RF, DFS, ANTM, CSX, NSC, UNP, JBHT, FSLR, ADS, PAYX
Thu, Aug. 20, 9:35 AM
- Discover (NYSE:DFS) achieved its highest-ever score in J.D. Power's 2015 U.S. Credit Card Satisfaction Study, with 828 out of a possible 1K points.
- It marks the first time since the survey began in 2007 that American Express (NYSE:AXP) hasn't gotten the number one ranking.
- Discover's new security feature - allowing customers to freeze a credit card through a mobile app - helped give the company its edge, says J.D. Power.
Fri, Jul. 24, 3:31 PM
- Goldman's (GS -1.8%) Q2 results confirmed the team's expectation of positive revisions to 2016 consensus EPS. Zions (ZION -0.7%) has "multiple catalysts" to reach improve profitability goals and EPS growth over the next three years.
- Guggenheim's four key investment themes: 1) Names levered to improving M&A, with Goldman being the best idea, followed by Morgan Stanley (MS -1.3%); 2) Restructuring stories, with Zions the best idea, but First Horizon (FHN -1%), Ally Financial (ALLY -1.8%), and BofA (BAC -1.6%) also worth looking at; 3) Idiosyncratic growth stories like MasterCard (MA +0.7%), Visa (V +4.5%), Synchrony Financial (SYF -2.4%), and Signature Bank (SBNY -0.8%); 4) Names with a distinct M&A catalyst in the regionals group like BB&T (BBT -1.5%), CIT Group (CIT -1.6%), and Springleaf (LEAF -1.4%).
- Mixed results from credit card companies affirm the team's preference for SYF, but the risk/reward at AmEx (AXP -1.4%) is improving. AmEx, CapOne (COF -13%), and Discover (DFS -2.7%) results show the boosted competition they face form the banks, which is slowing growth, and lifting marketing and rewards costs.
- Source: Barron's
- Previously: Capital One tumbles after earnings miss and trio of downgrades (July 24)
Wed, Jul. 22, 4:32 PM
- Q2 net income of $599M or $1.33 per share vs. $644M of $1.35 one year ago. ROE of 21%.
- Total loans of $69B up 4.8% Y/Y. Credit card loans of $54.9B up 4.2%. Discover card sales volume up 2.3%, or 5% excluding gasoline purchases.
- Net charge-off rate for credit card loans down 5 bps from a year ago to 2.28%. Delinquency rate for loans more than 30 days past due down 8 bps to 1.55%.
- Direct Banking pretax income of $914M slipped 7%, in part due to $42M of expenses thanks to exit from Home Loans business and anti-money laundering costs. Net interest margin of 9.63% down 22 bps from a year ago. Credit card yield of 12.04% down 6 bps.
- Payment Services pretax income of $28M down $3M from a year ago. Dollar volume of $47.5B down 7%.
- About 7M shares bought back during quarter for $425M, cutting float by 1.6%.
- Conference call at 5 ET
- Previously: Discover Financial Services beats by $0.01, misses on revenue (July 22)
- DFS -0.3% after hours
Wed, Jul. 22, 4:08 PM
Wed, Jul. 22, 2:47 PM
- The enforcement action by the Consumer Financial Protection Bureau is its first against a student loan servicer. The agency accuses Discover (DFS +0.1%) of overstating minimum payments necessary, engaging in illegal debt-collection tactics, and denying borrowers information about how they could receive tax benefits.
- In paying the $18.5M fine, Discover (DFS +0.1%) - the country's 3rd-largest student-loan lender - neither admitted nor denied the charges.
- Discover reports Q2 results after the bell.
- Previously: Citi to pay $700M for deceptive credit card marketing (July 21)
Tue, Jul. 21, 5:35 PM| Tue, Jul. 21, 5:35 PM | 5 Comments
Thu, Jul. 16, 4:25 PM
Tue, Jun. 16, 4:08 PM
- "The business is not projected to meet our financial expectations due to ongoing challenges to our home loans operating model," says Carlos Minetti, president of consumer banking at Discover (NYSE:DFS).
- Discover acquired the business - known now as Discover Home Loans - in 2012. Operations at the unit will continue until August, when AmeriSave Mortgage will take over the processing of remaining applications. About 460 employees will be affected. Discover will continue to originate home equity loans through its bank.
- The company expects to take about a $0.04 per share charge related to the exit.
- Source: Press release
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