Discover Network, a part of The Direct Banking segment of Discover Financial Services (DFS), has inked a multi-year deal with First National Bank of Omaha, under which the latter will issue credit cards on the Discover network from next year.
The customers of First National Bank will have a choice of methods when selecting a payment method and also have exposure to additional direct, agent bank and co-brand issuing opportunities.
Since its inception in 1986, Discover has grown to become one of the largest card issuers in the United States and a leading innovator and driver of change in the credit card industry. During the third quarter, Discover credit card volumes grew by 5% year over year on higher consumer spending and merchant acceptance.
Loan loss provisions, net charge offs and delinquency rates improved modestly, reflecting overall better credit trends. However, expenses were higher than expected, muting growth to some extent.
Overall, the company posted a solid third quarter due to a significant rise in the use of credit cards with reduced defaults, improved credit quality, as well as gains from the payments business driven by strong volumes. However, higher interest expenses and tax rate were partial offsets.
The Zacks Consensus Estimate for fourth-quarter 2010 is 36 cents per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, 93 cents per share and $1.74 per share.
Based on such bullish factors like the strategic Student Loan Corp. acquisition which should enhance its already strong student loan portfolio, the company’s extensive network, sound capital position and cost containment initiatives, we maintain our Outperform recommendation on Discover Financial. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward directional pressure on the shares over the near term.
Based in Riverwoods, Illinois, Discover Financial Services is a credit card issuing and an electronic payment services company in the United States. The company offers credit cards, personal and student loans and deposit products. In March 2009, Discover became a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act in connection with its participation in the U.S. Treasury’s Capital Purchase Program.
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