Skip to Content
Morningstar
Get 14 Days Free

Discover Financial Services DFS

Morningstar Rating
Rating as of

Morningstar’s Analysis

Valuation
Currency in USD
Is it the right time to buy or sell?
Find out with Morningstar Premium
Is it the right time to buy or sell?
Find out with Morningstar Premium

1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Another Good Quarter for Discover as Strong Credit Performance Continues

Michael Miller Equity Analyst

Analyst Note

| Michael Miller |

Narrow-moat Discover reported strong second-quarter earnings with reported EPS of $5.55 easily beating the FactSet consensus of $4.11. Net revenue also grew 34% year over year and 28% sequentially. However, results benefited from a $321 million reserve release and $729 million unrealized gain on its investment in Marqeta. Without the one-time gain, revenue would have increased 7%, still a strong result relative to Discover’s peers. The bank’s net charge-off rate has remained low, at 2.45% for the quarter, and a 30+ day delinquency rate of 1.43% suggests that credit costs will likely remain low for Discover for the remainder of 2021. With the allowance for bad loans at 8.01% of total loans there is still room for further reserve releases, though the majority should be behind us and the timing of the remainder is difficult to predict. After incorporating these results, we are increasing our fair value estimate for Discover to $113 from $110 which includes our projection of a corporate tax hike to a statutory rate of 26% in 2022.

Read Full Analysis

Company Profile

Business Description

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.

Contact
2500 Lake Cook Road
Riverwoods, IL, 60015
T +1 224 405-0900
Sector Financial Services
Industry Credit Services
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 17,600

Related

Stock Strategist Industry Reports
What the Stress Test Results Mean for Banks
Capital returns are coming back, but don't forget about valuations.
Eric Compton
Commentary
The Week Ahead: Abbott Laboratories and Johnson & Johnson Due
Fourth-quarter earnings announcements from financial, consumer products, and technology sectors.
Charlotte Frank
Fund Spy
The Year in U.S. Equity Funds, 2019
A very good year for the market.
Nick Watson
Fund Spy
Trying to be Large-Value in a Large-Growth World
How four large-value Morningstar Medalists have fared in the growth-led market.
Tony Thomas
Stock Strategist
Discover's in a Sweet Spot
It's able to hold less capital against credit card loans compared with its larger, more regulated rivals.
Colin Plunkett
Stock Strategist Industry Reports
How Blockchain Affects Our Coverage
We believe companies with moats from switching costs and intangible assets are less vulnerable.
Jim Sinegal
Investing Specialists
Our Ultimate Stock-Pickers' Top 10 High-Conviction and New-Money Purchases
This period saw the return of our top managers into household, blue-chip names.
The Morningstar Ultimate Stock-Pickers Team
Investing Specialists
Our Ultimate Stock-Pickers' Top 10 High-Conviction and New-Money Purchases
Our top managers are turning over more rocks in search for buried treasure.
The Morningstar Ultimate Stock-Pickers Team
Market Update
7 Stocks Top Large-Cap Managers Have Been Buying
Here's where Gold-rated investors from Diamond Hill, Dodge & Cox, and Oakmark have found opportunity.
Susan Dziubinski
Stock Strategist
Synchrony Spreads Its Wings as It Flies Solo
Private-label leader capitalizes on commerce trends.
Dan Werner
US Videos
StockInvestor: 2015 Winners and Losers
Alphabet, Visa, and Novo Nordisk outperformed, while energy and basic materials were a drag on returns, says Morningstar's Matt Coffina.
Matthew Coffina
Stock Strategist
Synchrony's on Its Own
We like the business, which is now separate from GE, and think it's undervalued.
Dan Werner
Stock Strategist
Checking Out PayPal
It has a head start in an increasingly competitive electronic payment market.
Jim Sinegal
US Videos
4 Major Themes for Banks in 2015
Morningstar's Dan Werner expects continued pressure on net interest margins, increased fee revenue, a focus on expense controls, and strong trading revenue for investment banks.
Dan Werner
US Videos
Friday Five: Market Takes Good Job News in Bad Way
A better-than-expected February employment report raises the prospect of the Fed hiking short-term rates sooner rather than later.
Jason Stipp
Commentary
Banks Breeze Through Fed's Annual Stress Tests
Results of adverse scenarios are generally in line with Morningstar's own Stress Test analyses.
Dan Werner
US Videos
The Winners and Losers in a Changing Mortgage Market
Increased regulation could advantage high-tech disrupters and firms with economies of scale, says Morningstar's Jim Sinegal.
Matthew Coffina
Stock Strategist Industry Reports
The Future of Retail Banking
Morningstar's Dan Werner and Jim Sinegal see a move toward digital and direct channels.
Dan Werner
Commentary
What Apple’s Payments Play Means for Credit Cards
The new Apple Pay is unlikely to disrupt payment networks or credit card issuers--and should even expand network volume, writes Morningstar’s Jim Sinegal.
Jim Sinegal
Stock Strategist
5 Key Questions for JPMorgan Investors
Outperformance is increasingly unlikely.
Jim Sinegal

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.