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Discover Financial Services (DFS) Is Water-Logged And Getting Wetter Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Discover Financial Services (DFS) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Discover Financial Services as such a stock due to the following factors:

  • DFS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $150.0 million.
  • DFS has traded 1.8 million shares today.
  • DFS traded in a range 201% of the normal price range with a price range of $1.87.
  • DFS traded below its daily resistance level (quality: 5 days, meaning that the stock is crossing a resistance level set by the last 5 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on DFS:

Discover Financial Services, a bank holding company, provides a range of financial products and services in the United States. The company operates in two segments, Direct Banking and Payment Services. The stock currently has a dividend yield of 1.7%. DFS has a PE ratio of 11.7. Currently there are 14 analysts that rate Discover Financial Services a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Discover Financial Services has been 3.1 million shares per day over the past 30 days. Discover Financial Services has a market cap of $26.8 billion and is part of the financial sector and financial services industry. The stock has a beta of 0.87 and a short float of 1% with 1.77 days to cover. Shares are up 4.2% year-to-date as of the close of trading on Monday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Discover Financial Services as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • DFS's revenue growth has slightly outpaced the industry average of 1.3%. Since the same quarter one year prior, revenues slightly increased by 2.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • DISCOVER FINANCIAL SVCS INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, DISCOVER FINANCIAL SVCS INC increased its bottom line by earning $4.96 versus $4.46 in the prior year. This year, the market expects an improvement in earnings ($5.25 versus $4.96).
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 49.74% is the gross profit margin for DISCOVER FINANCIAL SVCS INC which we consider to be strong. 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 26.87% compares favorably to the industry average.
  • Despite the current debt-to-equity ratio of 1.84, it is still below the industry average, suggesting that this level of debt is acceptable within the Consumer Finance industry.

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