Opinions
Andy Nasr
Discover Financial Services LLC
DFS-N
BUY
Aug 12, 2014
Stock price when the opinion was issued
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Discover Financial (DFS-N) or Visa (V-N)? Has recently come off quite a bit on the back of a missed earnings quarter. They also provided some forward negative guidance. He owns MasterCard (MA-N) which is very similar to Visa in terms of valuations. Visa has a much stronger earnings profile, and given the fact that the technicals are looking a bit rough on this one, he would wait until they turn around a bit and have an earnings surprise.
Have a credit card business as well as a consumer lending business, so they get great leverage through rising interest rates which he thinks will happen. Thinks costs are going to come down moving into next year. Stock is cheap at under 10X and they are returning a lot of capital to shareholders.
He likes the credit growth story in the US. Thinks consumers are very well positioned to increase spending. If you look at consumer spending growth, it has only averaged 2% since the global financial crisis. The long-term average is much, much higher than that. Credit card receivables since about 2007 are still down about 15%, compared to where they were several years ago. That tells you that despite the fact that the US economy has done better, consumer spending hasn’t really accelerated. For the 1st time, we are starting to see credit standards at originations for both credit card receivables and mortgages ease. Lenders are starting to become a little bit less strict about who they give money to. This is a good story and they are going to have the ability to increase their market share and you should see a better