10Y annualized return is
very good
at 12.3% per year
DFS has met or exceeded earnings expectations in
few
recent quarters (4/10)
Attractive Price-to-Earnings Ratio
Strong Return on Equity
Healthy Net Profit Margin
Moderate Debt Levels
Strong Free Cash Flow
📈 Strong Financial Performance
🔒 Improved Risk Management
🏦 Strong Deposit Growth
🚀 Merger with Capital One
📊 Growth in New Accounts
High EV/EBITDA Ratio
Operating Profit Margin Concerns
Liquidity Concerns
Low Interest Coverage
⚠️ Declining Card Sales
📉 Economic Uncertainty
Overall, Discover Financial Services showcases a solid business model with strong financial performance and improved risk management. The pending merger with Capital One presents significant opportunities for growth, although challenges such as declining card sales and economic uncertainties remain pertinent factors to monitor.
Analysis Date: January 23, 2025
Last Updated: March 12, 2025
Past performance does not guarantee future results. The data presented is indicative and may not be updated in real-time.
Discover Financial Services is a company that helps people manage their money and make payments. It offers credit cards that people can use to buy things now and pay later. Discover also provides loans for students, personal needs, and homes, as well as savings and checking accounts for everyday banking. Additionally, they run a network that allows people to use their debit cards and process payments easily.
Streams of revenue
Geographic Distribution
Core Products
Business Type
Business to Consumer
Competitive Advantages
Key Business Risks
Latest News
Capital One's plans to acquire Discover have been approved at the federal level.
Capital One Financial's (COF 0.95%) planned acquisition of Discover Financial Services (DFS 3.22%) has received regulatory approval, and investors are...
DFS' first-quarter results are likely to benefit from higher non-interest income.
Trailing Twelve Months (TTM) values provide a view of the company's performance over the last year.
Benjamin Graham's value investing approach focuses on finding stocks with a significant margin of safety between their intrinsic value and market price.
Intrinsic Value
Estimated fair value based on Graham's formula
$623.88
Current Market Price: $147.20
IV/P Ratio: 4.24x (>1.0 indicates undervalued)
Margin of Safety
Gap between intrinsic value and market price
76.0%
Graham recommended a minimum of 20-30% margin of safety
Higher values indicate a greater potential discount to fair value
Graham Criteria Checklist
Benjamin Graham's value investing checklist for DFS
Positive earnings (5+ years)
Dividend history (5+ years)
P/E ratio ≤ 20 (9.07)
P/B ratio ≤ 1.5 (2.07)
Current ratio ≥ 2.0 (0.15x)
Long-term debt < Net current assets (-0.18x)
Margin of safety (76.0%)
DFS does not meet all Graham criteria
Trailing Twelve Months (TTM) values provide a view of the company's performance over the last year.
Profitability metrics measure a company's ability to generate earnings relative to its revenue, operating costs, and other relevant metrics. Higher values generally indicate better performance.
Return on Equity (ROE)
Measures how efficiently a company uses its equity to generate profits
24.88%
Higher values indicate better returns for shareholders
TTM (as of 2025-04-30)
Gross Profit Margin
Percentage of revenue retained after accounting for cost of goods sold
94.04%
Higher values indicate better efficiency in production
TTM (as of 2025-04-30)
Net Profit Margin
Percentage of revenue retained after accounting for all expenses
20.29%
Higher values indicate better overall profitability
TTM (as of 2025-04-30)
A return on equity of 24.82% indicates that the company is effective in generating profits from its shareholders' equity, reflecting strong profitability.
The net profit margin of 20.29% demonstrates that the company retains a good portion of revenue as profit, which is a sign of operational efficiency.
The operating profit margin of 18.65% could be seen as moderate, indicating some room for improvement in operational efficiency.
Financial health metrics assess a company's ability to meet its financial obligations and its overall financial stability.
Debt to Equity Ratio
Total debt divided by total equity
0.91x
Lower values indicate less financial leverage and risk
Less than 1.0 is conservative, 1.0-2.0 is moderate, >2.0 indicates high risk
Q4 2024
Current Ratio
Current assets divided by current liabilities
0.15x
Higher values indicate better short-term liquidity
Less than 1.0 is concerning, 1.0-2.0 is adequate, greater than 2.0 is good
Q4 2024
A debt-to-equity ratio of 0.91 shows that the company is using a reasonable amount of debt to finance its operations, which is generally manageable.
With a free cash flow per share of 24.71, the company has a solid cash generation capability, allowing it to fund operations and invest in growth.
The current ratio, quick ratio, and cash ratio are all at 0.0, indicating significant liquidity issues that may affect short-term financial stability.
An interest coverage ratio of 0.88 suggests that the company may struggle to meet its interest obligations, indicating financial strain.
Meeting Expectations
Higher values indicate better execution and credibility
Recent Results
EPS
Discover reported a net income of $4.5 billion for 2024 and an earnings per share of $17.72, indicating strong profitability and effective cost management. The company also achieved significant growth in average loans and deposits, demonstrating its ability to attract and retain customers.
The firm has made substantial investments in risk management and compliance, resulting in improved credit performance with declining net charge-offs and delinquency rates. This enhances the overall stability and reliability of the business model.
Consumer deposits grew by 10% year-over-year, supported by leading products and customer experience, which enhances the funding mix and positions the company favorably in a competitive landscape.
The pending merger with Capital One is expected to create significant synergies, advance the company’s mission, and enhance shareholder value. Integration planning is progressing well, indicating a smooth transition ahead.
With the expectation of increased new account generation in 2025, Discover anticipates that this will provide a modest boost to sales, indicating future growth potential.
Discover card sales were down 3% compared to the prior year due to credit tightening actions. This suggests some challenges in maintaining sales momentum in the current environment.
The company maintains a cautious outlook with economic forecasts of unemployment and GDP growth remaining relatively unchanged, which could impact consumer spending and lending.