Shares of Discover Financial Services (DFS) scaled a 52-week high of $65.92 on Sep 18, 2014. The stock has been riding high, mainly driven by strong second-quarter 2014 earnings, introduction of Cashback Bonus on Discover cards and lower interest rates on Student Loans.
Discover Financial’s second-quarter earnings of $1.35 per share surpassed the Zacks Consensus Estimate by 3.9%. Moreover, earnings improved year over year by 13%. The stellar results were primarily due to loan growth and share repurchases. Discover Financial’s strong performance was also evident from the double-digit new account growth. Moreover, the rollout of a cash back reward program on its Discover it and Discover More cards, along with announcement of new lower rates for students during the quarter contributed positively as well.
Notably, this financial services giant has delivered positive earnings surprises in the last three quarters with an average beat of 4.6%. Following its earnings release on Jul 22, 2014, Discover Financial’s shares gained nearly 3% to close at $65.59 in the last trading session.
The one-year return from the stock was 28.7%, above S&P 500’s return of 19.2% and that of other players in the healthcare services space like American Express Company (AXP), Capital One Financial Corporation (COF)and Visa Inc. (V) which generated returns of 19.6%, 24% and 14.5% respectively, over the same period.
Moreover, the company’s quality services keep it cushioned from significant customer attrition. The accolades it has received this year clearly reflect its quality services. Notably, the International Quality and Productivity Center awarded three Call Center Excellence Awards to Discover Financial for high-end customer service. Moreover, implementation of the new core banking platform is viewed favorably by us as it supports all the deposit products and is thus likely to take Discover Financial’s customer service to new heights.
Further, given the continuous resort to electronic mode of payment with an increase in transactions per active card, there remains further scope for payment processors like Discover Financial to generate growth.
Currently, Discover Financial carries a Zacks Rank #3 (Hold).
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