Discover Financial Stock Is Attractive At The Current Levels

+6.06%
Upside
122
Market
130
Trefis
DFS: Discover Financial Services logo
DFS
Discover Financial Services

Discover Financial stock (NYSE: DFS) has lost roughly 4% YTD, as compared to the 3% rise in the S&P500 over the same period. Further, at its current price of $94 per share, it is trading 20% below its fair value of $117 – Trefis’ estimate for Discover Financial’s valuationThe credit card giant posted better-than-expected results in the fourth quarter of 2022, with revenues increasing by 27% y-o-y to $3.7 billion. It was driven by a 24% rise in net interest income (NII) and a 47% jump in noninterest revenues. The noninterest revenues benefited from higher loan fee income, an increase in discount & interchange revenues, and a drop in losses from equity investments from -$138 million to -$6 million. Similarly, the NII was up due to the higher net interest margin and loan growth. Notably, the average loans increased 19% y-o-y to $108 billion. That said, the provisions for credit losses increased from $263 million to $883 million in the quarter. This led to a 3% y-o-y decline in the adjusted net income to $1.03 billion.

The company’s net revenues increased 10% y-o-y to $13.34 billion in FY 2022. It was due to a 16% y-o-y growth in the net interest income, partially offset by a 9% drop in the noninterest revenues. The noninterest revenues mainly suffered due to a drop in gain (losses) on equity investments from $424 million to -$214 million, more than offsetting the growth in loan fee income and discount & interchange revenues. Further, the total Discover card purchase volume improved by 16% y-o-y over the same period. On the cost front, the provisions figure witnessed an unfavorable build-up from $12.1 billion to $13.3 billion. Overall, it resulted in a 20% y-o-y decrease in the adjusted net income to $4.3 billion.

The consensus estimates of Q1 2023 revenues and earnings are $3.7 billion and $3.99 respectively. Altogether, Discover Financial’s revenues are estimated to touch $15.2 billion in FY2023. Additionally, DFS’s adjusted net income is expected to remain around $3.5 billion in the year. This coupled with an annual EPS of $13.56 and a P/E multiple of just below 9x will lead to a valuation of $117.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 DFS Return -16% -4% 31%
 S&P 500 Return 0% 3% 77%
 Trefis Multi-Strategy Portfolio -3% 4% 228%
Relevant Articles
  1. Up 8% YTD, What To Expect From Discover Financial Stock In Q1?
  2. Up 14% YTD, What’s Next For Discover Financial Stock?
  3. Discover Financial Stock Is Undervalued
  4. Discover Financial Stock Is Fairly Priced At The Current Levels
  5. Discover Financial Stock To Edge Past The Revenue Consensus In Q1
  6. Discover Financial Stock To Beat The Earnings Consensus In Q4?

[1] Month-to-date and year-to-date as of 3/29/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates