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
TheStreet Open House

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

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,248.59 +91.74 0.53%
S&P 500 2,009.15 +7.58 0.38%
NASDAQ 4,586.3740 +24.1850 0.53%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs