In an attempt to expand its operation in the U.S., Discover Financial Services (DFS) recently announced its strategic alliance with Amalgamated Bank of Chicago (ABOC) in order to launch American Union Financial Services (AUFS) and ABOC Discover card.
The AUFS and ABOC Discover card will provide beneficial offers to the cardholders such as no annual fee, a low annual percentage rate, AmalgaMiles travel rewards and zero liability on fraudulent transactions. The card has been initially launched for a select group of Joint Council Teamster local union members and their families.
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. Through the launch of AUFS and ABOC Discover card, the company aims to boost its already outperforming Payment Services segment, thereby increasing transaction volumes.
However, the Payment Services segment accounts for about 5% of the company’s pre-tax income. Hence, Discover requires to steadfast its partnerships and agent networks in order to boost the volumes in the segment.
Earnings Recap
Discover’s reported first quarter loss of 22 cents, which came in way behind the Zacks Consensus Estimate of earnings of 4 cents. Although Discover’s deposit balances witnessed an increase, decrease in credit card loans reflected the decline in balance transfer volume in the Discover Bank segment. However, Discover Card sales volume and Payment Services segment continued to outperform.
Moreover, credit quality metrics, although still high, continued to show improvement. Charge-offs and 30-day plus delinquencies at Discover are improving compared to the peer average. Going forward, we expect the improving credit trends to continue with the gradual economic recovery.
Overall, Discover’s extensive network, sound capital position and cost containment initiatives boost our confidence in the stock.
Read the full analyst report on “DFS”
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