Discover Financial's Revenue Growth Impresses, Costs Hurt

Discover Financial Services’ (NYSE:DFS) consistent revenue growth, soaring card sales volume and effective capital management help it maintain a strong position in the market. The company specializes in providing direct banking and payment services in the United States through credit cards, personal, student and home loans as well as deposit products.

Factors to Bet on

The Riverwoods, IL-based company has been witnessing a steady growth in the top line over past many years and the same momentum continued in the first half of 2017 as well. This solid revenue growth is expected to help in driving the company’s margins.

The company’s Direct Banking segment holds immense growth potential, as evident from its solid performance. Total loans of this segment grew at an average rate of 5.4% in last four years (2012-2016) followed by an 8% increase during the first six months of 2017.

Of late payments via plastic cards — credit, debit, charge and other cards have rapidly overtaken cash payments. In this scenario, Discover Financial’s continuous innovations in its product lines, along with other players like Western Union Company (NYSE:WU) , American Express Company (NYSE:AXP) , Visa Inc (NYSE:V) , have resulted it rapid card sales volume.

Discover Financial’s effective capital management continues to impress. Deployment of excess capital through acquisitions, share repurchases and dividend payouts helped the company in enhancing shareholders’ value.

What Bothers Us?

The company’s rising level of expenses continues to pose a concern as it significantly weighs on its profitability. Moreover, its payment services segment that has been a drag over the past few years, keeps affecting the underwriting results.

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