Discover Financial's Alliances Impress, Competition A Drag

On Sep 13, 2016, we issued an updated research report on Discover Financial Services (NYSE:DFS)

The Illinois-based direct banking and payment services company has introduced innovations in its product line in order to become one of the major card issuers in the U.S. The launch of better, tailor-made products to cater to the varying needs of customers has helped the company witness consistent year-over-year growth in revenues. Improved consumer spending and wallet share, credit quality trends and new card account have also contributed to it.

Discover Financial’s inorganic growth is backed by its strong financial position. The company has been largely benefited by the numerous capital boosting initiatives undertaken in terms of both debt and equity offering. Discover Financial’s regularly makes efforts to enhance shareholder’s value and retain investor confidence. In fact, the company plans to buy back almost $2 billion of its common stock over the next 12 months. Other than share repurchases, the company’s frequent dividend increases have helped it to find favor with investors.

Apart from mergers and acquisitions, strategic alliances and partnerships have paved the way for the Zacks Rank #3 (Hold) consumer loan provider to earn worldwide recognition as well as strengthen its global payment network. The company has already established its presence in India, China, Russia, Nigeria and other Middle-Eastern countries alongside the U.S.

However, intense competition from industry giants has been limiting Discover Financial’s business opportunities. Though the company managed to control cost to a smaller extent in the last reported quarter, increasing expenses associated with several marketing and business development activities to survive in the tough market conditions raise concern. Also, the company’s Payments Service segment continues to underperform, thereby adding to the woes.

Stocks That Warrant a Look

Investors can consider some better-ranked stocks from the same space like Credit Acceptance Corp (NASDAQ:CACC) , Manhattan Bridge Capital, Inc. (NASDAQ:LOAN) and SLM Corporation (NASDAQ:SLM) . All of these stocks carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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