Discover Financial Services Stock Buy Recommendation Reiterated (DFS)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK (TheStreet) -- Discover Financial Services (NYSE:DFS) has been reiterated by TheStreet Ratings as a buy with a ratings score of A- . The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, growth in earnings per share, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

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Highlights from the ratings report include:

• Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 79.92% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DFS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
• Despite its growing revenue, the company underperformed as compared with the industry average of 9.6%. Since the same quarter one year prior, revenues slightly increased by 6.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
• DISCOVER FINANCIAL SVCS INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DISCOVER FINANCIAL SVCS INC increased its bottom line by earning $4.06 versus $1.22 in the prior year. This year, the market expects an improvement in earnings ($4.50 versus $4.06).
• The gross profit margin for DISCOVER FINANCIAL SVCS INC is rather high; currently it is at 50.50%. Regardless of DFS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DFS's net profit margin of 27.40% significantly outperformed against the industry.
• Net operating cash flow has increased to $656.43 million or 18.04% when compared to the same quarter last year. Despite an increase in cash flow of 18.04%, DISCOVER FINANCIAL SVCS INC is still growing at a significantly lower rate than the industry average of 85.96%.

Discover Financial Services, a bank holding company, offers direct banking and payment services in the United States. It operates in two segments, Direct Banking and Payment Services. Discover Financial Services has a market cap of $20.49 billion and is part of the financial sector and financial services industry. The company has a P/E ratio of 9.4, below the S&P 500 P/E ratio of 17.7. Shares are up 69.1% year to date as of the close of trading on Wednesday.

You can view the full Discover Financial Services Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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For more information on Discover Financial Services click any of the following:

• Discover Financial Services Stock Price

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