21 Oct 2015

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Discover Financial Services (DFS)

21 Oct 2015

In this week’s content analysis, we take a look at the Q3 results of Discover Financial Services (DFS), which were updated in our database today. We hold DFS in our US-Large model portfolio since May 2012, and the company has always had one of the highest SP scores in its sector. As of October 21st, DFS has a score of 77%, which is the 2nd best SP score in our portfolio and the 4th best score for US-large cap stocks.  Download

Despite a slight decrease, return on capital remains fairly high at 21.2% in respect to cost of capital at 9.9%. The intrinsic value has been increasing for the past 3 quarters, which makes the spread price-intrinsic value increasingly interesting. The P/IV is 0.75 since the 21st of October, reflecting a potential upside of 33%. The future growth value (FGV) at -3.7% also tells us that the company’s total market value is slightly discounted relative to its current operating value.

In terms of EVA, we can firmly state that DFS offers an exemplary stability for its shareholders. Although the total EVA generated is stable since late 2011, the EVA per share is on the rise given that the company has made several buybacks. In the short term, total EVA has been increasing at a constant rate since December 2014.

Concluding with the accounting performance, Discover will appeal to those who of you who appreciate dividend growth; with an average annual growth rate of 65% over 5 years, and 44% over 3 years. Since 2011, DFS has also bought back an average of 5.6% of its outstanding shares each year. Discover generates very high positive free cash flows each year, which is one of the factors that allow it to sustain high dividend growth and its share buybacks. You will note that certain fields in the “Accounting Performance” section are missing for the moment. They will be updated shortly.

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