{"id":68989,"date":"2023-10-05T08:37:10","date_gmt":"2023-10-05T12:37:10","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/discover-financial-stock-is-undervalued\/"},"modified":"2023-10-05T08:37:13","modified_gmt":"2023-10-05T12:37:13","slug":"discover-financial-stock-is-undervalued","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=68989","title":{"rendered":"Discover Financial Stock Is Undervalued"},"content":{"rendered":"<div>\n<p>Discover Financial stock (NYSE: DFS) has lost roughly 11% YTD, as compared to the 12% rise in the S&amp;P500 over the same period. Further, at its current price of $87 per share, it is trading 22% below its fair value of $112 \u2013 Trefis\u2019 estimate for <strong data-ga-track=\"ExternalLink:https:\/\/www.trefis.com\/data\/companies\/DFS\/no-login-required\/koBS5C4c\/Discover-Financial-DFS-Valuation-Is-DFS-Stock-Expensive-Or-Cheap-?fromforbesandarticle=trefis231005\">Discover Financial\u2019s valuation<\/strong><strong>.<\/strong><\/p>\n<p>Interestingly, Discover Financial stock had a Sharpe Ratio of <strong>0.3<\/strong> since early 2017, which is lower than <strong>0.6 <\/strong>for the S&amp;P 500 Index over the same period. This compares with the <strong>Sharpe of 1.24<\/strong> for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.<\/p>\n<p>The credit card giant posted mixed results in the second quarter of 2023, with revenues beating the consensus but earnings missing expectations. It reported net revenues of $3.88 billion, which is 21% y-o-y more than the year-ago period. It was driven by a 22% growth in the net interest income, followed by a 16% rise in the non-interest revenues. The NII was up due to an increase in outstanding loan balances, along with higher interest rate margins. Notably, the NII contributes around 80% of the top line. On the expense front, provisions for credit losses witnessed an unfavorable increase from $549 million to $1.3 billion in the quarter. It resulted in an 18% drop in the adjusted net income to $895 million.<\/p>\n<p>The company\u2019s net revenues grew 25% y-o-y to $7.62 billion in the first half of FY 2023. It was primarily because of a 24% jump in the net interest income, thanks to higher interest rates and loan growth. Further, total payments volume \u2013 a key metric, improved by 9% y-o-y over the same period. On the cost side, the provisions figure witnessed a significant build-up, leading to a 20% y-o-y decline in the adjusted net income to $1.83 billion.<\/p>\n<p><fbs-ad position=\"inread\" progressive=\"\" ad-id=\"article-0-inread\" aria-hidden=\"true\" role=\"presentation\"><\/fbs-ad><\/p>\n<p>Moving forward, we expect the same trend to continue in the third quarter. Notably, the consensus estimates for Q3 2023 revenues and earnings are $3.94 billion and $3.19 respectively. Overall, <strong data-ga-track=\"ExternalLink:https:\/\/www.trefis.com\/data\/companies\/DFS\/no-login-required\/jGRyW5yU\/Discover-Financial-Revenues-How-Does-DFS-Make-Money-?fromforbesandarticle=trefis231005\">Discover Financial\u2019s revenues<\/strong> are estimated to touch $15.61 billion in FY2023. Additionally, DFS\u2019s adjusted net income margin is likely to drop in the year, leading to an adjusted net income of around $3.28 billion in the year. This coupled with an annual EPS of $12.84 and a P\/E multiple of just below 9x will lead to a valuation of $112.<\/p>\n<p>Invest with <strong>Trefis <\/strong><strong data-ga-track=\"ExternalLink:https:\/\/dashboards.trefis.com\/data\/companies\/PORTFOLIOS\/no-login-required\/M7MacZNG?fromforbes\">Market Beating Portfolios<\/strong><\/p>\n<p>See all <strong>Trefis <\/strong><strong data-ga-track=\"ExternalLink:https:\/\/dashboards.trefis.com\/data\/price-estimates?fromforbes\">Price Estimates<\/strong><\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.forbes.com\/sites\/greatspeculations\/2023\/10\/05\/discover-financial-stock-is-undervalued\/\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Discover Financial stock (NYSE: DFS) has lost roughly 11% YTD, as compared to the 12% rise in the S&amp;P500 over the same period. Further, at its current price of $87 per share, it is trading 22% below its fair value of $112 \u2013 Trefis\u2019 estimate for Discover Financial\u2019s valuation. Interestingly, Discover Financial stock had a [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":68990,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-68989","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets","tag-featured"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Discover Financial Stock Is Undervalued | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Discover Financial stock (NYSE: DFS) has lost roughly 11% YTD, as compared to the 12% rise in the S&amp;P500 over the same period. 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