Shares of Discover Financial Services ( DFS) closed at $38.51 Wednesday, returning 61% year-to-date, following a 31% return during 2011. The shares trade for 2.4 times tangible book value, according to Thomson Reuters Bank Insight, and for 10 times the consensus 2013 EPS estimate of $4.02. The consensus 2012 EPS estimate is $4.23. Based on a quarterly payout of 10 cents, the shares have a dividend yield of 1.04%. Discover has been the most efficient of actively traded U.S. banks, with an efficiency ratio of 36.54%, for the 12-month period ended May 31. The company's fiscal year ends on Nov. 30. Reflecting its emphasis on credit card lending and payment services, as well as the company's low-cost on-line deposit gathering model, Discover's ROA for the 12-months ended June 30 was 3.30%, while its ROE was 33.30%. Discover in August announced a deal with eBay ( EBAY) unit PayPal, for PayPal's customers to be able to use the service to make purchases at the 7 million retail locations that currently accept Discover, beginning in the second quarter of 2013. KBW analyst Sanjay Sakhrani rates Discover "Outperform," with a price target of $40, saying after the PayPal deal was announced that it was "clearly a big win for the network side" of Discover's business, "as it exemplifies the value-added services it can provide and the optionality of the company's business model." The analyst added that "while there are likely to be some costs associated with the roll-out, we think it should be manageable for the company," and estimated that "Discover could earn 10-20 bps of the transaction, which would be consistent with
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