Contrasting Discover Financial Services (NYSE:DFS) & LendingClub Corporation (LC)

Discover Financial Services (NYSE: DFS) and LendingClub Corporation (NYSE:LC) are both mid-cap finance companies, but which is the superior stock? We will compare the two companies based on the strength of their profitability, valuation, dividends, earnings, institutional ownership, analyst recommendations and risk.

Risk & Volatility

Discover Financial Services has a beta of 1.47, meaning that its stock price is 47% more volatile than the S&P 500. Comparatively, LendingClub Corporation has a beta of 1.81, meaning that its stock price is 81% more volatile than the S&P 500.

Valuation and Earnings

This table compares Discover Financial Services and LendingClub Corporation’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Discover Financial Services $7.17 billion 3.47 $2.17 billion $5.82 11.47
LendingClub Corporation $511.51 million 4.67 -$123.42 million ($0.30) -19.37

Discover Financial Services has higher revenue and earnings than LendingClub Corporation. LendingClub Corporation is trading at a lower price-to-earnings ratio than Discover Financial Services, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Discover Financial Services and LendingClub Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 1 9 15 0 2.56
LendingClub Corporation 0 9 7 0 2.44

Discover Financial Services currently has a consensus price target of $74.45, suggesting a potential upside of 11.49%. LendingClub Corporation has a consensus price target of $6.82, suggesting a potential upside of 17.33%. Given LendingClub Corporation’s higher possible upside, analysts plainly believe LendingClub Corporation is more favorable than Discover Financial Services.

Dividends

Discover Financial Services pays an annual dividend of $1.40 per share and has a dividend yield of 2.1%. LendingClub Corporation does not pay a dividend. Discover Financial Services pays out 24.1% of its earnings in the form of a dividend. Discover Financial Services has increased its dividend for 6 consecutive years.

Institutional and Insider Ownership

85.4% of Discover Financial Services shares are owned by institutional investors. Comparatively, 89.1% of LendingClub Corporation shares are owned by institutional investors. 1.0% of Discover Financial Services shares are owned by company insiders. Comparatively, 11.4% of LendingClub Corporation shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Discover Financial Services and LendingClub Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Discover Financial Services 20.04% 20.74% 2.38%
LendingClub Corporation -24.52% -11.97% -2.18%

Summary

Discover Financial Services beats LendingClub Corporation on 10 of the 16 factors compared between the two stocks.

Discover Financial Services Company Profile

Discover Financial Services (DFS) is a direct banking and payment services company. The Company is a bank holding company, as well as a financial holding company. The Company operates through two segments: Direct Banking and Payment Services. It provides direct banking products and services, and payment services through its subsidiaries. It offers its customers credit card loans, private student loans, personal loans, home equity loans and deposit products. The Company’s Direct Banking segment includes consumer banking and lending products, specifically Discover-branded credit cards issued to individuals and small businesses on the Discover Network and other consumer banking products and services. The Company’s direct banking offers credit cards, student loans, personal loans, home equity loans, and other consumer lending and deposit products. The Payment Services segment includes PULSE, Diners Club and the Company’s Network Partners business.

LendingClub Corporation Company Profile

LendingClub Corporation provides online marketplace to connect borrowers and investors. Consumers and small business owners borrow through Lending Club. Investors use Lending Club to earn risk-adjusted returns from an asset class that has been closed to many investors and only available on a limited basis to large institutional investors. Its technology automates aspects of operations, including the borrower application process, data gathering, credit decisioning and scoring, loan funding, investing and servicing, regulatory compliance and fraud detection. Its platform offers analytical tools and data to enable investors to make decisions and assess their portfolios. Its technology platform has allowed it to expand its offerings from personal loans to include small business loans, and to expand investor classes from individuals to institutions and create various investment vehicles.

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