We issued an updated research report on Discover Financial Services DFS on Dec 22, 2015.
The company remains focused on enhancing its card sales volumes. The partnership with Creditcall Financial during the last reported quarter is worth mentioning in this regard. This is because the deal helped to expand Discover and Diners Club cards acceptance worldwide. In terms of global expansion, Discover Financial’s earlier acquisition of Diners Club Italy and its wholly owned subsidiary, the alliance with Vietnam-based Smartlink Card Service JSC, and collaborations with Crédit Mutuel-CIC Group and Checkout.com deserve mention.
Additionally, inorganic growth initiatives have helped the company boost its loan portfolio, which grew in the first nine months of 2015. Also, the divestiture of businesses like Home Loans and mortgage origination should help Discover Financial focus on core capabilities. The company also boasts a strong financial position that helps it deploy capital efficiently.
However, the company’s huge expense burden and a weak Payments Service segment raise caution. Additionally, the company faces many litigation issues that might tarnish its goodwill. At the same time, these lawsuits might require the company to dish out a large sum of money, which will weigh heavily on the financials.
Last month, the company reported third-quarter 2015 earnings that surpassed the Zacks Consensus Estimate but decreased year over year. The year-over-year decline mainly stemmed from sluggish card sales, weak loan growth, and expenses associated with the closure of the Home Loans business.
Discover Financial currently holds a Zacks Rank #2 (Buy). Other financial services providers that deserve mention include Credit Acceptance Corp. CACC, First Cash Financial Services Inc. FCFS and Cash America International, Inc. CSH. While Credit Acceptance sports a Zacks Rank #1 (Strong Buy), First Cash Financial and Cash America hold the same Zacks Rank as Discover Financial.
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