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Is Discover Financial Services (NYSE:DFS) The Best Digital Payments Stock?

Ramish Cheema
·4 min read

The digital payments industry is quite lucrative. It stands right at the cusp of a consumer's economic interaction, allowing digital payments firms to take a commission from almost all transactions that they process. This means that as long as the economy grows, digital payments firms are able to grow their transaction volumes provided all other things remain equal. To understand this, a brief look at the performance of the Nasdaq CTA Global Digital Payments Index can help. The index lost more than 20% when American and global consumers were feeling the inflationary and interest rate pinch. But since October, it has gained quite a bit, as the economic clouds turn gray from black.

Due to this dynamism, we decided to take a look at the recent performance of Discover Financial Services (NYSE:DFS) as part of our list of the 10 Best Digital Payments Stocks To Buy Now. While Discover Financial Services (NYSE:DFS) is not the best digital payment stock according to the methodology of this list, it still ranks 4th. Therefore, the stock merits a sharper look at some recent financial performance, hedge fund sentiment, and analyst ratings.

Discover Financial Services (NYSE:DFS)

Discover Financial Services (NYSE:DFS) is a firm that is quite important within the banking industry. This isn't because of its size, but instead because of an impending acquisition by the $52 billion banking behemoth Capital One Financial Corporation (NYSE:COF). Should regulators decide to approve the deal, then the new entity will become America's sixth largest bank. Wondering which is the biggest bank in America? Check out 20 Largest Banks in the US by Customers.

Discover Financial Services (NYSE:DFS)'s recent financial performance:

Discover Financial Services (NYSE:DFS)'s latest financial results were for its first quarter of 2024. These saw the bank's $1.10 in adjusted EPS miss analyst estimates of $2.95. Why did Discover Financial Services (NYSE:DFS) post such a huge miss? Well, the digital payments firm's 68% annual net profit drop in the quarter came as it set aside more money to fund credit and other losses.

Discover Financial Services (NYSE:DFS) and hedge funds:

Looking at Discover Financial Services (NYSE:DFS)'s mixed financial performance, it's important to see if it changed anything for the hedge funds. Smart money's careful due diligence and stock analysis allow fund managers to have sharp insights for companies. During Q1 2024, 71 hedge funds in Insider Monkey's database had bought a stake in Discover Financial Services (NYSE:DFS) - a sharp uptick from the previous quarter's 43 funds. In terms of monetary value, the stakes were cumulatively worth $3.5 billion for a notable increase over the previous quarter's $1.4 billion. Glen Greenberg's Brave Warrior Capital held a stake worth $433 million.

What Do Analysts Say About Discover Financial Services (NYSE:DFS)?

The average of 12 one year analyst share price targets for Discover Financial Services (NYSE:DFS) is $135 along with an average rating of Buy. Jefferies has rated the shares as Buy, Barclays, and Wells Fargo have rated them as Equal Weight, and JPMorgan's rating is Neutral along with a similar rating of Hold from HSBC. The latest analyst note came from Jefferies, and it saw the firm raise Discover Financial Services (NYSE:DFS)'s share price target to $145 from $137 and reiterate a Buy rating. Some of the reasons behind the upgrade were improved expectations for collection and better delinquency rates.

So, Is Discover Financial Services (NYSE:DFS) the Best Digital Payments Stock?

The above information might make one feel conflicted about Discover Financial Services (NYSE:DFS). After all, while the firm is seeing significant interest from hedge funds and some analyst optimism, its financials were less than stellar for the first quarter. Additionally, Discover Financial Services (NYSE:DFS)'s shares might be in for some volatility due to the impending Capital One merger. Along with these factors, the firm ranks 4th on our list of the best digital payments stocks.

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Want to know which stocks ranked higher and lower? Be sure to check out 10 Best Digital Payments Stocks To Buy Now.

If you are looking for an AI stock that is as promising as DFS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.

Disclosure: None. This article is originally published at Insider Monkey.