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, increase in net income, revenue growth, growth in earnings per share and notable return on equity. 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 40.63% 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.
• The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Consumer Finance industry average. The net income increased by 7.5% when compared to the same quarter one year prior, going from $512.58 million to $551.00 million.
• Despite its growing revenue, the company underperformed as compared with the industry average of 7.4%. Since the same quarter one year prior, revenues slightly increased by 6.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
• DISCOVER FINANCIAL SVCS INC has improved earnings per share by 12.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, DISCOVER FINANCIAL SVCS INC increased its bottom line by earning $4.46 versus $4.06 in the prior year. For the next year, the market is expecting a contraction of 1.3% in earnings ($4.40 versus $4.46).
• The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Consumer Finance industry and the overall market, DISCOVER FINANCIAL SVCS INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.

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 $18.94 billion and is part of the financial sector and financial services industry. The company has a P/E ratio of 8.5, below the S&P 500 P/E ratio of 17.7. Shares are down 1.1% 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:

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