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Discover Financial Services DFS

Morningstar Rating
$120.07 −0.74 (0.61%)
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Company Report

Capital One to Acquire Discover

Narrow-moat Capital One Financial has agreed to acquire Discover Financial Services in an all-stock deal worth $35 billion. The acquisition is expected to close by late 2024 to early 2025. In general, we are neutral on the deal as we do see strategic value to it, particularly as it relates to Discover’s network. Additionally, we believe Capital One is paying a fair price, with the implied transaction price of $139.86 per share at the time of the announcement being nearly equal to our $141 fair value estimate for Discover. That said, there will be meaningful integration risk and some uncertainty around regulatory approval, as the combined company would be the largest credit card issuer in the U.S. by loan volume. Therefore, we do not expect our fair value estimate to change as a result of the transaction.

Price vs Fair Value

DFS is trading at a 15% discount.
Price
$120.07
Fair Value
$524.00
Uncertainty
High
1-Star Price
$452.68
5-Star Price
$95.50
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Discover has consistently been able to generate returns on equity that are among the highest of its peers.

Bears

Discover is subject to the same competitive rewards environment as other credit card issuers. Its rewards rate has climbed over time and is likely to continue to do so.

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News

Trading Information

Previous Close Price
$120.81
Day Range
$119.94121.23
52-Week Range
$79.04127.34
Bid/Ask
$116.66 / $124.05
Market Cap
$30.08 Bil
Volume/Avg
1.7 Mil / 2.8 Mil

Key Statistics

Price/Earnings (Normalized)
10.67
Price/Sales
1.92
Dividend Yield (Trailing)
2.33%
Dividend Yield (Forward)
2.33%
Total Yield
8.73%

Company Profile

Discover Financial Services is a bank operating in two distinct segments: direct banking and payment services. The company issues credit and debit cards and provides other consumer banking products including deposit accounts, students loans, and other personal loans. It also operates the Discover, Pulse, and Diners Club networks. The Discover network is the fourth-largest payment network in the United States as ranked by overall purchase volume, and Pulse is one of the largest ATM networks in the country.
Sector
Financial Services
Industry
Credit Services
Stock Style Box
Mid Growth
Total Number of Employees
21,100

Competitors

Valuation

Metric
DFS
AXP
COF
Price/Earnings (Normalized)
10.6719.5310.86
Price/Book Value
2.185.640.89
Price/Sales
1.922.671.42
Price/Cash Flow
3.6010.932.86
Price/Earnings
DFS
AXP
COF

Financial Strength

Metric
DFS
AXP
COF
Quick Ratio
Current Ratio
Interest Coverage
Quick Ratio
No chart available

Profitability

Metric
DFS
AXP
COF
Return on Assets (Normalized)
2.12%3.64%1.02%
Return on Equity (Normalized)
22.27%33.42%8.78%
Return on Invested Capital (Normalized)
Return on Assets
DFS
AXP
COF
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Economic Moat
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MA
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AXP
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COF
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SYF
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ALLY
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SOFI
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WU
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