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Discover Financial Services DFS

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Economic Moat




Cost Savings and Low Provisioning Drive Strong Results for Discover Despite Lower Loan Balances

Eric Compton, CFA Senior Equity Analyst

Analyst Note

| Eric Compton, CFA |

Narrow-moat Discover Financial enjoyed a sharp rebound from the first and second quarters of 2020, with diluted EPS of $2.45 during the third quarter well exceeding the CapIQ consensus estimate of $1.54. Robust earnings were driven by better credit performance, a smaller reserve build, and savings in marketing and professional services spending. After incorporating these results, we’re increasing our fair value estimate to $80 per share from $77.

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Company Profile

Business Description

Discover Financial Services is a bank operating in two distinct segments: direct banking and payments. The company issues credit and debit cards and provides other consumer banking products including deposit accounts, students loans, and other personal loans. In addition, it generates revenue from payments processed on the Discover network. The Discover Network is the third- largest payment network as ranked by overall merchant acceptance, trailing Visa and Mastercard.

2500 Lake Cook Road
Riverwoods, IL, 60015
T +1 224 405-0900
Sector Financial Services
Industry Credit Services
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 17,200