Discover Financial Services (NYSE:DFS) revealed its monthly stats, which showed that the digital banking and payment services company continues to grow its loan book. Despite its growing loans, DFS stock is down about 4.9% in the pre-market session on Tuesday. The drop can be attributed to the increase in the monthly credit card delinquency rate. In a separate development, the company announced that its CEO Roger Hochschild is stepping down, which didn’t go down well with the investors.
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Against this background, let’s look at the monthly credit metrics of DFS.
Discover Financial’s Monthly Stats Remain Strong
Discover Financial’s average loans have consistently increased over the past four months. Its average loans stood at $94.5 billion at the end of July, compared to $93.3 billion at the end of June. Moreover, it was significantly higher than the average loan balance of $79.7 billion in the prior year period.
While its growing loan book is positive, DFS’ monthly credit card delinquency rate (which represents loans delinquent for 30 or more days) increased to 3% in July. This represents an increase of 23 basis points and 116 basis points on a month-over-month and year-over-year basis, respectively. Further, Discover Financial’s delinquency rate was also higher than its pre-pandemic rates.
Following the monthly disclosure of credit metrics, Goldman Sachs analyst Ryan Nash reiterated the Buy recommendation on DFS stock on August 14. In a note to investors, the analyst said that the firm’s July monthly metrics show the “continued normalization of credit metrics (DQs underperform, NCOs slightly lower but UP seasonality) while loan growth continued to outperform.”
DFS’s CEO Stepping Down May Put Pressure on Stock
Discover Financial announced that its CEO Roger Hochschild will step down and named John Owen as the interim CEO and President. While the board didn’t cite any specific reason behind the move, Nash expects it to pressure the company’s share price.
The analyst said that the financial impact of the move is uncertain. However, it will create an “overhang” on DFS stock. Further, it will add to the uncertainty regarding the timing of the share repurchases.
Overall, the stepping down of the CEO was not a favorable development for Discover Financial stock.
Is DFS a Good Buy?
Wall Street analysts are cautiously optimistic about DFS stock. It has received five Buy and eight Hold recommendations for a Moderate Buy consensus rating. Analysts’ average 12-month price target of $116.50 implies 13.49% upside potential.
