NEW YORK ( TheStreet) -- Some investors have been griping about the market valuation of Discover Financial Services (DFS - Get Report), despite the stock's stellar performance, according to KBW analyst Sanjay Sakhrani.
It's not difficult to understand why. Discover's shares closed at $52.42 Monday and traded for 10.3 times the consensus 2014 earnings estimate of $5.07 a share, among analysts polled by Thomson Reuters. That's a rather modest forward price-to-earnings ratio, considering how profitable Discover has been.
Many regional banks trade at considerably higher valuations despite being much less profitable than Discover. Here are a few examples:
- Shares of Comerica (CMA) of Dallas closed at $43.30 Monday and traded for 14.7 times the consensus 2014 EPS estimate of $2.95. Comerica's return on average equity (ROE) has ranged between 6.64% and 8.49% over the past four quarters, according to Thomson Reuters Bank Insight.
- First Niagara Financial Group (FNFG) of Buffalo closed at $11.06 Monday and traded for 13.5 times the consensus 2014 EPS estimate of 82 cents. The company's ROE has ranged between 4.79% and 6.42% over the past four quarters.
- Shares of Zions Bancorporation of Salt Lake City closed at $28.40 Monday and traded for 15.4 times the consensus 2014 EPS estimate of $1.84. The company's ROE has ranged between 3.53% and 7.12% over the past four quarters.
Meanwhile, Discover's ROE has ranged between 22.54% and 27.78% over the past four quarters. That performance of course reflects the company's focus on credit card lending, which has been a very bright spot over the past several years, as the regional banks have worked through their nonperforming residential and commercial mortgage loans.