This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

10 Cheapest Bank Stocks for 2013

8. Discover Financial Services

Shares of Discover Financial Services (DFS) closed at $37.99 Friday, returning 60% year-to-date, following a 31% return during 2011.

The shares trade for 2.2 times tangible book value, and for 8.8 times the consensus fiscal 2013 EPS estimate of $4.33. The consensus fiscal 2014 EPS estimate is $4.49.

The company on Dec. 20 raised its quarterly dividend by 40% to 14 cents. Based on the increased payout, the shares have a dividend yield of 1.47%. The company repurchased 10 million common shares during the fiscal fourth quarter for $401 million, and was authorized under its current stock repurchase plan to buy back roughly $800 million worth of additional shares.

Discover's valuation and the fantastic track record for the shares even during a very difficult 2011 for the banking industry, reflect a strong and consistent earnings track record. For its fiscal fourth quarter ended Nov. 30, the company reported net income allocated to common shareholders of $551 million, or $1.07 a share, declining from $627 million, or $1.21 a share the previous quarter, but increasing from $513 million, or 95 cents a share, a year earlier.

Discover reported a fiscal fourth quarter return on equity of 23%, compared to 28% the previous quarter. Earnings declined sequentially because the company increased its provision for loan losses to $338 million from $126 million in the fiscal third quarter. The provision for loan losses was $319 million during the 2011 fiscal fourth quarter.

Guggenheim analyst David Darst on Dec. 20 wrote that Discover's "reserve release has ended, but credit cost remains low, resulting in a strong ROE and providing opportunity to invest in the payments business." The analyst added that "has multiple levers to drive profitability and growth; however, we expect higher provisioning to limit EPS growth in 2013/14. Despite this dynamic, consensus estimate revisions remain positive and the shares trade at an attractive valuation that does not fully reflect payment partnership opportunities, in our view."

Darst rates Discover a "Buy," with a $48 price target, and estimates the company will earn $4.44 a share in 2013, with EPS climbing to $4.50 in 2014.

DFS Chart DFS data by YCharts

Interested in more on Discover Financial Services? See TheStreet Ratings' report card for this stock.
4 of 11

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $17.48 0.00%
C $54.21 0.00%
COF $79.00 0.00%
JPM $67.17 0.00%
RF $10.17 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs