1. Discover Financial Services
Shares of Discover Financial Services (DFS) closed at $38.51 Wednesday, returning 61% year-to-date, following a 31% return during 2011.
The shares trade for 2.4 times tangible book value, according to Thomson Reuters Bank Insight, and for 10 times the consensus 2013 EPS estimate of $4.02. The consensus 2012 EPS estimate is $4.23.
Based on a quarterly payout of 10 cents, the shares have a dividend yield of 1.04%.
Discover has been the most efficient of actively traded U.S. banks, with an efficiency ratio of 36.54%, for the 12-month period ended May 31. The company's fiscal year ends on Nov. 30.Reflecting its emphasis on credit card lending and payment services, as well as the company's low-cost on-line deposit gathering model, Discover's ROA for the 12-months ended June 30 was 3.30%, while its ROE was 33.30%. Discover in August announced a deal with eBay (EBAY) unit PayPal, for PayPal's customers to be able to use the service to make purchases at the 7 million retail locations that currently accept Discover, beginning in the second quarter of 2013. KBW analyst Sanjay Sakhrani rates Discover "Outperform," with a price target of $40, saying after the PayPal deal was announced that it was "clearly a big win for the network side" of Discover's business, "as it exemplifies the value-added services it can provide and the optionality of the company's business model." The analyst added that "while there are likely to be some costs associated with the roll-out, we think it should be manageable for the company," and estimated that "Discover could earn 10-20 bps of the transaction, which would be consistent with [Visa (V) and Mastercard (MA)] economics." Sakhrani estimates that for its fiscal 2012 ended Nov. 30, Discover will earn $4.21 a share, followed by EPS of $3.96 in fiscal 2013. DFS data by YCharts
Interested in more on Discover Financial Services? See TheStreet Ratings' report card for this stock.
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