Discover Financial Services (DFS) AI Stock Analysis

• Market Cap: $50.34B
• Dividend Yield: 1.4%
• Average Volume (3M): 3.23M
• Price to Earnings (P/E): 10.7
• Beta (1Y): 1.32
• Revenue Growth: 9.42%
• EPS Growth: 128.55%
• Country: US
• Employees: 21,000
• Sector: Financial
• Sector Strength: 87
• Industry: Financial - Credit Services
• EPS (TTM): 4.25
• Shares Outstanding: 251,653,380
• 10 Day Avg. Volume: 5,159,204
• 30 Day Avg. Volume: 3,230,704
• PEG Ratio: 0.50
• Price to Book (P/B): 2.53
• Price to Sales (P/S): 0.00
• P/FCF Ratio: 5.66
• Enterprise Value/Market Cap: 0.71
• Enterprise Value/Revenue: 0.44
• Enterprise Value/Gross Profit: 2.05
• Enterprise Value/Ebitda: 2.09
• 1Y Price Target: $184.43
• Price Target Upside: -7.81% Downside
• Rating Consensus: Moderate Buy
• Number of Analyst Covering: 9

Discover Financial Services exhibits solid financial performance with strong revenue growth and a healthy balance sheet. The technical analysis indicates a bullish trend, though caution is advised due to overbought signals. The valuation is favorable with a low P/E ratio and reasonable dividend yield. The recent earnings call highlights significant earnings growth, although challenges such as increased expenses and declining card sales need to be monitored. The merger with Capital One is expected to bolster market position and offerings.

Positive Factors

Credit Performance

Credit continues to show improvement, supporting the view that credit losses should trend downward.

Earnings

Core EPS of $4.11 was above the analyst's estimate and consensus, indicating strong performance.

Merger

Valuation of DFS shares is positively influenced by the likely completion of its merger with Capital One.

Negative Factors

Loan Growth

End of period loan growth slowed to a decline of 0.4% year-over-year, which aligns with weaker loan growth at the beginning of the year.

Net Charge-offs

Net charge-offs rose slightly more than expected, indicating a potential area of concern for Discover Financial Services.

Regulatory Challenges

Discover faced regulatory investigations, which impacted its account growth strategy.

Discover Financial Services Business Overview & Revenue Model

Company Description

Discover Financial Services, through its subsidiaries, provides digital banking products and services, and payment services in the United States. It operates in two segments, Digital Banking and Payment Services. The Digital Banking segment offers Discover-branded credit cards to individuals; private student loans, personal loans, home loans, and other consumer lending; and direct-to-consumer deposit products comprising savings accounts, certificates of deposit, money market accounts, IRA certificates of deposit, IRA savings accounts and checking accounts, and sweep accounts. The Payment Services segment operates the PULSE, an automated teller machine, debit, and electronic funds transfer network; and Diners Club International, a payments network that issues Diners Club branded charge cards and/or provides card acceptance services, as well as offers payment transaction processing and settlement services. The company was incorporated in 1960 and is based in Riverwoods, Illinois.

How the Company Makes Money

Discover Financial Services generates revenue through several key streams. The primary source of income comes from interest income on outstanding credit card balances, personal loans, and student loans. The company also earns revenue from transaction fees collected from merchants when consumers use Discover cards for purchases on the Discover Network. Additionally, Discover makes money through service fees, including late payment fees, annual fees, and foreign transaction fees associated with its credit card products. Furthermore, Discover Financial Services benefits from its deposit products, such as savings accounts and certificates of deposit, which provide a stable source of funding. Strategic partnerships and alliances with other financial institutions also play a significant role in expanding Discover's reach and enhancing its earnings potential.

Discover Financial Services Financial Statement Overview

Summary

Discover Financial Services demonstrates strong financial performance with significant revenue growth and efficient cost management. The balance sheet reflects a strong equity position and no debt, enhancing financial stability. Cash flow remains strong, though there are indications of volatility in investing and financing activities. Overall, the company is on a stable financial trajectory with room for further improvement in profitability.

Income Statement

Discover Financial Services has shown strong revenue growth with a significant increase from $13.34 billion in 2022 to $20.02 billion in 2024. The EBIT margin is robust at 88.3% for 2024, indicating effective cost management and operational efficiency. However, the net profit margin has decreased from 32.8% in 2022 to 22.7% in 2024, suggesting increased costs or other financial pressures impacting net income.

Balance Sheet

The company's balance sheet shows a strong equity position with stockholders' equity increasing to $17.93 billion in 2024. The debt-to-equity ratio is healthy, moving to 0, indicating no debt and a reduction from previous years. Return on Equity (ROE) is solid at 25.3% in 2024, demonstrating effective use of equity for generating profit. The equity ratio remains stable, reflecting a sound capital structure.

Cash Flow

Operating cash flow has remained robust, although it decreased slightly from $8.56 billion in 2023 to $8.43 billion in 2024. The free cash flow growth rate is positive, with free cash flow reaching $8.43 billion in 2024. However, fluctuations in investing and financing cash flows indicate potential volatility in cash management strategies.

Breakdown
TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement		Total Revenue
20.00B	20.02B	9.84B	13.34B	12.09B	11.09B
	Gross Profit
17.55B	17.91B	9.84B	13.34B	12.09B	11.09B
	EBIT
7.75B	17.68B	5.11B	7.61B	7.06B	1.44B
	EBITDA
6.55B	0.00	0.00	6.28B	7.59B	0.00
	Net Income Common Stockholders
4.89B	4.54B	2.94B	4.37B	5.42B	1.14B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
26.64B	16.18B	11.69B	10.56B	10.77B	16.23B
	Total Assets
147.91B	147.64B	151.71B	131.85B	110.24B	112.89B
	Total Debt
14.54B	16.25B	21.33B	20.11B	20.23B	21.24B
	Net Debt
2.67B	7.78B	9.65B	11.25B	11.48B	7.68B
	Total Liabilities
128.95B	129.71B	137.48B	117.96B	96.83B	102.00B
	Stockholders Equity
18.96B	17.93B	14.23B	13.89B	13.41B	10.88B
Cash Flow		Free Cash Flow
8.45B	8.16B	8.26B	6.90B	5.83B	5.93B
	Operating Cash Flow
8.71B	8.43B	8.56B	7.14B	6.02B	6.20B
	Investing Cash Flow
-1.10B	-3.75B	-21.49B	-25.64B	40.00M	1.51B
	Financing Cash Flow
-9.22B	-7.90B	15.76B	16.06B	-8.32B	-1.08B

Discover Financial Services Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 200.05
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DFS, the sentiment is Positive. The current price of 200.05 is above the 20-day moving average (MA) of 188.59, above the 50-day MA of 172.36, and above the 200-day MA of 164.63, indicating a bullish trend. The MACD of 8.23 indicates Negative momentum. The RSI at 65.09 is Neutral, neither overbought nor oversold. The STOCH value of 66.06 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for DFS.

Discover Financial Services Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
DFS	78 Outperform	$50.34B	10.69	28.29%	1.40%	9.42%	128.55%
AXP	76 Outperform	$209.98B	20.94	34.02%	0.97%	8.45%	17.89%
PYPL	76 Outperform	$70.20B	16.19	22.20%	―	4.50%	12.82%
COF	73 Outperform	$75.56B	16.56	7.90%	1.22%	6.69%	-6.76%
SYF	71 Outperform	$23.14B	8.35	18.60%	1.64%	1.22%	4.96%
ALLY	66 Neutral	$11.07B	26.48	3.84%	3.33%	-2.99%	-43.64%
Sector *	64 Neutral	$12.82B	9.87	7.67%	17000.34%	12.39%	-5.85%

Discover Financial Services Corporate Events

Discover Financial Services Extends Interim CEO Tenure

On March 27, 2025, Discover Financial Services announced that J. Michael Shepherd will continue as Interim CEO and President until the merger with Capital One Financial Corporation is completed or until June 30, 2025. Shepherd’s compensation includes a base salary and a potential merger completion bonus, contingent on the merger’s completion by the specified date. This agreement outlines his compensation and conditions in the event of termination, but excludes participation in the company’s severance plans.

Discover Financial Services Releases Credit Card Statistics

Discover Financial Services has released its monthly credit card charge-off and delinquency statistics for the 24 months ending February 28, 2025. The report highlights fluctuations in charge-off and delinquency rates, with the net principal charge-off rate showing a slight increase over the period. These statistics provide insights into the company’s credit card portfolio performance, which may differ from the securitized loans reported by Discover’s Trusts due to differences in loan characteristics and calculation methods.

Discover Financial Services Merger Approved by Stockholders

On February 18, 2025, Discover Financial Services held a special meeting where stockholders approved the proposed merger with Capital One Financial Corporation. Over 82% of Discover’s outstanding shares were represented, with more than 99.3% voting in favor of the merger. This approval marks a significant step in merging the two companies, promising enhanced service offerings across consumer, small business, and merchant sectors. The merger is set to complete in early 2025, pending regulatory approvals, further solidifying the companies’ market positions and potentially benefiting stakeholders.

Discover Financial Releases January 2025 Credit Stats

Discover Financial Services released its monthly credit card charge-off and delinquency statistics for the period ending January 31, 2025. The data shows trends in the company’s credit card portfolio, including metrics such as net principal charge-off rates and delinquency rates, which can indicate the health of its credit operations. The statistics reveal fluctuations in these rates, partly attributed to external factors like disaster relief efforts. These insights are crucial for stakeholders to understand Discover’s credit performance and potential impacts on its financial stability and reputation in the sector.