Banking & Finance

Is Discover Financial Becoming a Bargain?

The financial sector underperformed the Dow Jones Industrial Average in January. In fact, financial stocks dropped 10% in the month, compared with a drop of 6.5% in the Dow. Big bank stocks had a rough month, but credit card issuers American Express Co. (NYSE: AXP) and Discover Financial Services (NYSE: DFS) did worse. American Express dropped nearly 24% in the month and Discover dropped more than 15%.

Discover’s shares closed near $48 on the day before it reported fourth-quarter results, dropped nearly $4 the next day and posted a new 52-week low of $44.67 on Friday. The decline was all about missing profit estimates, primarily the result of slow growth in the credit card business.

The profit miss does not appear to have moved ratings on the stock, although several analysts firms have cut their price targets. Here’s a rundown:

  • Barclays cut its price target from $68 to $63 but maintained an Overweight rating.
  • BMO Capital Markets cut its price target from $63 to $59 and maintained a Market Perform rating.
  • Credit Suisse lowered its price target from $68 to $62.
  • D.A. Davidson cut its price target to $62 and maintained a Buy rating.
  • Goldman Sachs maintained a recent Buy but cut its price target from $63 to $61.
  • Jefferies cut its price target from $75 to $60 and maintains a Buy rating.
  • KBW lowered its price target from $75 to $62.
  • Oppenheimer kept an Outperform rating but cut the price target from $76 to $67.
  • RBC cut its price target from $69 to $68 and lists the stock as a Top Pick.
  • Stifel lowered its price target to $60.

Clearly analysts are revising their outlook on how the stock will perform, but most are looking for Discover for a potential gain of around 30%. That looks like a bargain to us.

Sponsored: Find a Qualified Financial Advisor

Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.