The capital markets have been buoyant since early 2021, driven by the fast-paced macroeconomic recovery. A current IPO frenzy, particularly through direct listings and reverse mergers, has helped financial services companies generate impressive revenues, offsetting some of their losses resulting from the low interest income. U.S. IPOs hit an annual record of $171 billion less than six months into the year, as of June 15.
Furthermore, rising consumer and corporate borrowing in the ultra-low-interest-rate environment has driven increased loan business. Also, while the Fed has left benchmark rates unchanged for now, the central bank hinted at a sooner-than-expected monetary tightening. This should help financial services companies generate higher interest income.
Discover Financial Services (DFS)
DFS is a bank holding and financial holding company that facilitates digital banking and payment services in the United States. It operates through two segments–Digital Banking and Payment Services. The company’s Home Loan products was named as a Celent Model Bank Award winner in April in recognition of its operational excellence amid COVID-19. Its technological prowess and data analytics capabilities caused DFS in April to be named a 2021 FutureEdge 50 Winner for four consecutive years.
DFS partnered with Arab Financial Services (AFS) in May to allow Discover card holders to use their cards on AFS’ Android-based point-of-sale terminals across Bahrain. DFS customers are expected to benefit from its expanding global market reach. DFS also partnered with Eazy Financial Services to expand acceptance for DFS cards across Bahrain in May . Under this partnership, DFS cards are accepted across 95% of point-of-sale services and 100% of ATMs across the country. According to Vice President Matt Sloan, “Continually growing acceptance in this area will benefit all of the cardholders of our regional partners.”
Analysts at Citigroup upgraded DFS from “Neutral” to “Buy” on July 9. Shares of DFS opened at $121.26 on Friday, up 5.2% from their previous closing price of $115.26. Moreover, Arren Cyganovich raised DFS’ price target to $150, indicating a 22.5% potential upside from its last closing price of $122.40.
DFS’ discount and interchange revenues increased 12% year-over-year to $241 million in its fiscal first quarter, ended March 31. Its transaction processing revenues stood at $51 million, up 16% from the same period last year. Its net interest margin increased 54 basis points from the prior year quarter to 10.75%. Its net income and EPS came in at $1.59 billion and $5.04 respectively, demonstrating substantial improvement from the negative year-ago values. Its cash and investment securities balance increased 37% year-over-year to $30.11 billion, while its liquidity portfolio rose 45% from the prior year quarter to $28.20 billion.
A $11.57 billion consensus revenue estimate for its fiscal year 2021 indicates a 4.3% rise year-over-year. DFS’ EPS is expected to improve 290.6% from the same period last year to $14.06 in the current year. The company has an impressive earnings surprise history as well; it beat the Street’s EPS estimates in three of trailing four quarters. Shares of DFS have gained 154.1% over the past year, and 35.2% year-to-date.
DFS has an overall POWR Rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
DFS has a B grade for Growth, Sentiment, and Momentum. Of the 51 stocks in the Consumer Financial Services industry, DFS is ranked #7.
Beyond what we’ve stated above, one can view DFS ratings for Value, Stability, and Quality here.
Deutsche Bank Aktiengesellschaft (DB)
Headquartered in Germany, DB is a renowned financial services and investment banking company. The company operates in three segments–Corporate & Investment Bank, Private & Commercial Bank, and Asset Management. It has an ISS Quality Score of 1, indicating low governance risk.
DB has been appointed as a depositary bank for NYSE-listed depositary receipt programs of Chinese companies DingDong (Cayman) Limited and Full Truck Alliance Co. Ltd., and for Amsterdam-based Just East Takeaway.com N.V. over the past two months. These appointments demonstrate DB’s product offering strength in the Asia-Pacific and European regions.
DB repurchased €1 billion ($1.19 billion) worth of two senior non-preferred zero-coupon securities in June. This transaction should have a positive impact on DB’s coming credit review for upgrade from Moody’s.
Royal Bank of Canada analysts upgraded DB from an “underperform” to a “sector perform” on July 9. Shares of DB gained marginally intraday to close Friday’s trading session at $12.55. The stock has gained 29.1% over the past year, and 15.1% year-to-date.
DB’s net revenues have increased 14% year-over-year to €7.23 billion ($8.57 billion) in the fiscal first quarter ended March 31. This can be attributed to a 32% rise in ‘Investment Bank’ segment revenues, and 23% rise in ‘Asset Management’ segment revenues, respectively. Its profit before tax rose 671.4% from the same period last year to €1.59 billion ($1.89 billion). Its profits attributable to DB shareholders increased substantially from the negative year-ago values to €908 million ($1.08 billion). And its total assets under management stood at €1.35 trillion ($1.60 trillion), up 14% from the prior year quarter.
Analysts expect DB’s revenues to increase marginally year-over-year to $28.58 billion in its fiscal year 2021. The company’s EPS is expected to rise 46.8% from the same period last year to $1.16 in the current year. Also, DB beat the consensus EPS estimates in three of the trailing four quarters.
It’s no surprise that DB has an overall rating of B, which equates to Buy in our proprietary rating system. The stock has a grade of A for Growth, and B for Value. It is ranked #3 of 99 stocks in the Foreign Banks industry.
Click here to view additional DB ratings for Stability, Sentiment, Momentum, and Quality
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DFS shares were trading at $126.44 per share on Monday afternoon, up $4.04 (+3.30%). Year-to-date, DFS has gained 40.85%, versus a 17.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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