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Discover Financial Services (DFS), headquartered in Riverwoods, Illinois, provides digital banking products and services, and payment services. Valued at $40 billion by market cap, the company offers checking and savings accounts, certificates of deposit, credit card, personal, and home loans through its banking business.
Companies worth $10 billion or more are generally described as “large-cap stocks,” and DFS perfectly fits that description, with its market cap exceeding this mark, underscoring its size, influence, and dominance within the credit services industry. DFS is known for its innovative and customer-focused approach along with a strong market position and brand recognition building a loyal customer base by offering no annual fees, cash rewards, and exceptional customer service. Its conservative portfolio management and 100% U.S.-based customer support have solidified its reputation for reliability and quality.
Despite its notable strength, DFS slipped 21.2% from its 52-week high of $205.76, achieved on Jan. 30. Over the past three months, DFS stock declined 4.2%, underperforming the iShares U.S. Financial Services ETF’s (IYG) 2.1% gains during the same time frame.
In the longer term, shares of DFS dipped 6.4% on a YTD basis, underperforming IYG’s YTD marginal gains. However, the stock climbed 33.8% over the past 52 weeks, outperforming IYG’s 21.2% returns over the last year.
To confirm the bullish trend, DFS has been trading above its 200-day moving average over the past year, with slight fluctuations recently. However, the stock is trading below its 50-day moving average since early March.
DFS has outperformed due to increased interest income from personal and credit card loan growth, as well as higher volumes in PULSE and Diners Club transactions. The company's ability to lower provisions for credit losses and improve net charge-off trends has also increased investor confidence in its performance.
On Jan. 22, DFS shares closed up more than 4% after reporting its Q4 results. Its EPS of $5.11 topped Wall Street expectations of $3.17. The company’s revenue was $4.8 billion, exceeding Wall Street forecasts of $4.4 billion.
DFS’ rival, Capital One Financial Corporation (COF) shares lagged behind the stock, with a 26.1% gain over the past 52 weeks but outpaced the stock with a 3.2% loss on a YTD basis.
Wall Street analysts are moderately bullish on DFS’ prospects. The stock has a consensus “Moderate Buy” rating from the 15 analysts covering it, and the mean price target of $212.28 suggests an ambitious potential upside of 30.9% from current price levels.
