Oct. 14, 2013, 8:06 AM
- "A compelling growth story within financials over the next consumer leveraging cycle," says analyst David Ho, seeing above average loan growth even in the current sluggish macro environment, and continuing as loan demand accelerates.
- "This will translate into positive EPS revisions over time from likely better than expected NIM trends, benign credit costs, meaningful excess capital and high-margin payment assets," he says, starting Discover (DFS) at Buy with $62 price target.
Oct. 10, 2013, 7:53 AM| Comment!
Oct. 7, 2013, 3:52 PM
- Among banks and credit card names, FBR favors those picking up new teams/market share - namely Signature Bank (SBNY -1.4%) and Discover (DFS) - as well as those trading near book value, like HomeStreet (HMST -0.6%). PNC Financial remains a favorite for its strong growth prospects, as well as servicers like Nationstar (NSM +0.2%), Walter Investment (WAC -2.3%), and New Residential (NRZ -0.3%).
- Those most exposed to a protracted government shutdown are smaller community banks in the D.C. area like Eagle Bancorp (EGBN -1.4%), and Cardinal FInancial (CFNL -0.2%). Capital One (COF -1.9%) - by dint of its Chevy Chase acquisition - would also feel a pinch.
- On mREITs (REM -0.1%), the team expects Q3 book values to increase slightly, but warns its estimates are based on relatively static portfolios - "but for most names, portfolios are anything but that." With all the volatility, most mREITs may have hedged away the recent MBS rally. Starwood Property Trust (STWD) remains FBR's best idea thanks to its commercial real estate exposure.
- Financials ETFs: XLF, IYF, PFI, VFH, RYF, RWW, FAS, UYG, FAZ, SKF, SEF, IAI, FXO, PSCF, KBWD, KBWB, IYG, FINU, FINZ.
Oct. 4, 2013, 1:04 PM
- Despite expenses moving in the wrong direction and what he expects will be a declining trend in earnings, Capital One (COF +1.7%) is KBW's Sanjay Sakhrani top pick among the credit card lenders. Even with Q3 EPS expected at $1.78 vs. $2.01 a year ago, CapOne still trades at 10.1x 2014 consensus P/E - low for a stock with return on tangible common equity of nearly 18%, he says.
- The far-better performing (stock-price wise) Discover (DFS +0.3%) - trading at 10x 2014 earnings - is also rated a Buy as Sakhrani sees plenty of room for boosted buybacks. He predicts $350M of repurchases in Q3 vs. $340M in Q2, and a total of $1.3B for all of 2013.
- Though relatively pricey at 13.8x 2014 consensus P/E, American Express (AXP +0.1%) is also rated a Buy thanks to its long history of double-digit ROE (it was 23.6% in H1, down from 26.6% a year ago).
Sep. 10, 2013, 4:15 PM
- Discover (DFS +1.9%) and Capital One (COF +2.5%) are similarly valued at 10x 2014 estimated EPS, but Sandler O'Neill prefers Discover, saying the stock deserves a premium due to superior credit quality and loan growth. Discover grew credit card loans 4.9% Y/Y in Q2, while CapOne was negative. Discover's 30-plus day delinquency rate of 1.58% was below that of all U.S. banks at 2.52%. Finally, Discover's net charge-offs of 2.34% compares to 3.51% for the industry.
- Discover also trades at an undeserved discount to regional banks (KRE). Acknowledging the differences in Discover's and the regional banks' business models, Sandler still believes the discount is excessive again given superior loan growth and improved credit quality. Finally, Discover's net interest margin has consistently exceeded 9%.
Sep. 9, 2013, 12:56 PM
- As other banks get out of the student loan business (JPMorgan is the latest), they're leaving more for Wells Fargo (WFC +0.1%) which continues to up its presence, and is now 2nd in the nation behind Sallie Mae.
- Toss in Discover Financial (DFS +0.9%) and the 3 originate more than 75% of the country's private student loans, according to S&P.
- For the bank, the loans offer a better interest rate than mortgages or auto loans, but also heightened regulatory oversight. Wells is currently working with the CFPB on modification programs for those loans that become delinquent.
- "It's no longer sustainable and not the right place to allocate capital in the future," said HSBC in 2007 when it shut down its subprime unit. Are student loans next?
Aug. 27, 2013, 8:23 AM
- 0% balance transfers are nothing new, but today's teasers come with unusually lengthy periods - up to 2 years - and are being offered to a wider swath of customers than in the past, say industry executives (anyone who lived through the last credit cycle will find that hard to believe).
- Naturally, it comes with a catch, and lenders make money by charging a one-time transfer fee - typically 3%. Kudos to the credit card operators for slipping "0%" by regulators, while charging 3%.
- While JPMorgan (JPM), Citigroup (C), and Discover (DFS) are among those aggressively going after the business, American Express (AXP) CEO Ken Chenault isn't a fan. "Putting out a substantial number of 0% offers doesn't appear to target the affluent prospects some competitors claim to be after, nor is it a net revenue driver over the short term," he told investors earlier this month.
- The others claim the practice allows them to grow their loan portfolios after they shrank dramatically in wake of the financial crisis.
Aug. 14, 2013, 10:03 AM
Jul. 23, 2013, 4:23 PMMore on Discover (DFS) Q2 earnings: Credit card loans of $49.8B up 5% Y/Y. Credit card delinquencies a record-low 1.58% in last 30 days down 27 bps from a year ago. Loan loss provision of $225M off $37M from a year ago. Net interest margin of 9.44% up 16 bps from a year ago thanks to decreased funding costs as loan yields fell. Net interest income of $116M up 9% Y/Y. Expenses up 2% Y/Y. Payment services reported a $21M pretax loss vs. a $50M gain a year ago, thanks to a $55M charge to support Diners Club International Franchises. 7M shares repurchased for $340M. Shares +0.6% AH. CC at 5 ET. (PR) | 1 Comment
Jul. 23, 2013, 4:10 PM
Jul. 23, 2013, 12:10 AM
Jul. 22, 2013, 5:35 PMNotable earnings after Tuesday’s close: AAPL, ACC, ACE, AEC, ALTR, BCR, BRCM, CPWR, DFS, EA, FBC, FNB, FTI, HA, HLIT, HTS, IGT, ILMN, IRBT, JNPR, KFN, LLTC, NBR, NSC, PEI, PLCM, PNRA, RE, RFMD, RHI, RKT, T, TSS, UIS, USNA, VASC, VMW, VOCS, WCN, ZIXI | Comment!
Jul. 17, 2013, 5:43 PM
Jul. 16, 2013, 12:17 PMCredit card trust data for June confirm the industry is seeing modestly lower delinquency rates, mixed net charge-off results, and continuing sluggish growth, says Nomura's Bill Carcache. The standouts in the slow-growth environment were AMEX (AXP) and Discover (DFS), growing 4% and 4.8% respectively, while Capital One (COF) "missed" normal seasonal improvement in delinquencies by 9 bps. | Comment!
Jul. 15, 2013, 3:26 PMWith growth opportunities limited, credit card stocks are expense control and capital-return stories at this point, says Jefferies, and heading into Q2 earnings, Discover (DFS) and American Express (AXP) are best positioned to surprise. Discover is the leader in cutting rewards expense, with AMEX next, and Capital One (COF) not yet slashing. | 4 Comments
Jun. 5, 2013, 3:56 PMDiscover (DFS -1.4%) sees no benefit from Nomura raising its target on the Buy-rated stock to $54 from $50. The analysts see Discover as poised to outperform whether markets move higher or pull back as they expect loss-reserve builds to be more gradual than the consensus view. $54 represents 11x 2014 expected earnings. | Comment!
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