Discover Keeps Neutral Rec - Analyst Blog
12 Febbraio 2013 - 4:30PM
Zacks
We have retained our Neutral recommendation on Discover
Financial Services (DFS). The recommendation is based on
its rising expenses and high competitive pressure, which are
expected to weigh on the positives. This direct banking and payment
services company currently carries a Zacks Rank #3 (Hold).
Why Reiterate?
Discover Financial incurs considerable expenses in order to
compete with other credit card issuers to attract and retain
customers and increase card usage. The company’s profits are
largely tapered due to the company’s higher-than-expected
advertising and marketing expenditures. Information processing and
communications expenses, professional fees, premises and equipment
and other expenses also increased in 2012, thereby substantially
increasing total non-interest expenses.
Moreover, Discover Financial’s competitors in the credit card
business have substantially larger scales of operation, posing
ample risk on the operational front. Companies in the competitive
card business have to offer various incentives and rewards in order
to attract customers.
Discover Financial’s rivals have more financial resources than
the company due to larger operating scale, which enables them to
offer better incentives. Thus, Discover Financial is relatively at
a competitive disadvantage, which tends to slow down its growth in
the global market.
Nevertheless, counting on the positives, Discover Financial has
grown to become one of the largest card issuers in the U.S. and a
leading innovator in the credit card industry. Credit card sales
volume reached the milestone of $100 billion in 2011 and increased
further in 2012.
The company regularly forms alliances to boost card acceptances
and expand its network. Discover Financial also continues to
explore healthy opportunities for inorganic and is working hard to
establish a foothold in the international card market.
Discover Financial reported fourth-quarter 2012 operating
earnings per share of $1.07, lagging the Zacks Consensus Estimate
of $1.13. However, earnings surpassed the year-ago quarter’s
earnings of 95 cents per share.
Other Stock to Consider
Although we have a cautious stance on Discover Financial, other
stocks in the financial sector such as Visa Inc.
(V), Fidelity National Information Services, Inc.
(FIS) and Fiserv, Inc. (FISV), which carry a Zacks
Rank #2 (Buy), are worth considering.
DISCOVER FIN SV (DFS): Free Stock Analysis Report
FIDELITY NAT IN (FIS): Free Stock Analysis Report
FISERV INC (FISV): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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