The financial sector experienced a difficult travail amid the COVID-19 pandemic as interest rates hovered around zero. While the interest rate environment has not changed, most companies in the financial space are staging impressive comebacks with rising financial activities as the economy gradually reopens. Investors’ renewed interest in the financial space is evidenced by Financial Select Sector SPDR ETF’s (XLF) 23.5% returns over the past three months compared to SPDR S&P 500 ETF Trust’s (SPY) 11.5% gains.
Banking platforms are sharpening their focus on digital platforms to bring deliver more convenience to their consumers. According to ResearchAndMarkets, the digital banking platform market is expected to grow at an 11.2% CAGR between 2021 – 2026.
Favorable analyst reports on financial stocks also indicate their solid growth prospects. Cases in point are Discover Financial Services (DFS), and KeyCorp (KEY), which have recently been upgraded by Wall Street analysts. So, we think it could be wise to bet on them now.
Discover Financial Services (DFS)
DFS operates as a digital banking and payment services company in the United States. It does business mainly through two segments—Digital Banking and Payment Services. The company issues the Discover card—the U.S.’ cash rewards pioneer—and offers private student loans, personal loans, home loans, checking and savings accounts and certificates of deposit through its banking business. BofA Securities recently upgraded the stock from ‘Neutral’ to ‘Buy.’
DFS’ EBIT increased 2765.4% year-over-year to $2.10 billion for the first quarter, ended March 31, 2021. The company’s net income came in at $1.60 billion, which represents a 2711.5% year-over-year increase. Its EPS came in at $5.04, up 2116% year-over-year.
Analysts expect DFS’ EPS to increase 355% year-over-year to $3.06 for the current quarter, ending June 30, 2021. DFS surpassed consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to be $2.89 billion for quarter ending September 30, 2021, which represents an 8.3% rise year-over-year.
On March 22, DFS and Payments Network Malaysia Sdn Bhd (PayNet), the national payments network and shared central infrastructure for payment services in Malaysia, signed an agreement that is expected to expand Discover, Diners Club International and network alliance cardholders’ acceptance in Malaysia. The stock has gained 187.8% over the past year and closed yesterday’s trading session at $107.76.
DFS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has a B grade for Growth and Momentum. Click here to access DFS’s ratings for Quality, Sentiment, Stability, and Value.
DFS is ranked #14 of 50 stocks in the Consumer Financial Services industry.
Bank-based financial services company KEY operates through various subsidiaries, including KeyBank National Association (KeyBank). It provides a range of retail and commercial banking, commercial leasing, investment management, consumer finance, and investment banking products and services to individual, corporate and institutional clients. The company operates through two segments—Key Community Bank and Key Corporate Bank. The stock was recently upgraded to Outperform from Neutral by Wedbush.
For its fiscal year 2021 first quarter ended March 31, 2021, the company’s revenues increased 19.3% year-over-year to $1.80 billion. Its net income has increased 326% sequentially to $622 million. And its EPS also increased 416% sequentially to $0.62.
Analysts expect KEY’s EPS to come in at $0.53 for the current quarter ending June 30, up 211.8% year-over-year. KEY surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 2.9% year-over-year to $6.91 billion in fiscal 2021.
KEY acquired data analytics-driven consultancy firm AQN Strategies LLC on March 2. The acquisition is part of the company’s efforts to employ data-driven approaches, which are expected to help it in expanding its customer reach. The stock has gained 84.8% over the past year and closed yesterday’s trading session at $21.45.
It’s no surprise that KEY has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Value, Sentiment, and Growth also. Click here to see the additional POWR Ratings for KEY (Quality, Momentum, and Stability).
KEY is ranked #1 of 11 stocks in the Money Center Banks industry.
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DFS shares were trading at $111.04 per share on Wednesday afternoon, up $3.28 (+3.04%). Year-to-date, DFS has gained 23.22%, versus a 12.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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