Analyzing Discover Financial Services (DFS) and Credit Acceptance (CACC)

Discover Financial Services (NYSE: DFS) and Credit Acceptance (NASDAQ:CACC) are both finance companies, but which is the better stock? We will contrast the two companies based on the strength of their dividends, earnings, valuation, institutional ownership, risk, analyst recommendations and profitability.

Profitability

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

Net Margins Return on Equity Return on Assets
Discover Financial Services 17.95% 21.49% 2.36%
Credit Acceptance 42.36% 30.18% 8.37%

Dividends

Discover Financial Services pays an annual dividend of $1.40 per share and has a dividend yield of 1.9%. Credit Acceptance does not pay a dividend. Discover Financial Services pays out 23.4% of its earnings in the form of a dividend. Discover Financial Services has increased its dividend for 7 consecutive years.

Analyst Ratings

This is a breakdown of recent ratings for Discover Financial Services and Credit Acceptance, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 0 5 17 1 2.83
Credit Acceptance 4 4 1 0 1.67

Discover Financial Services presently has a consensus price target of $85.50, suggesting a potential upside of 18.88%. Credit Acceptance has a consensus price target of $269.88, suggesting a potential downside of 15.60%. Given Discover Financial Services’ stronger consensus rating and higher probable upside, equities analysts clearly believe Discover Financial Services is more favorable than Credit Acceptance.

Volatility & Risk

Discover Financial Services has a beta of 1.46, suggesting that its share price is 46% more volatile than the S&P 500. Comparatively, Credit Acceptance has a beta of 0.53, suggesting that its share price is 47% less volatile than the S&P 500.

Earnings and Valuation

This table compares Discover Financial Services and Credit Acceptance’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Discover Financial Services $11.55 billion 2.21 $2.10 billion $5.98 12.03
Credit Acceptance $1.11 billion 5.56 $470.20 million $20.44 15.64

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

Institutional & Insider Ownership

86.4% of Discover Financial Services shares are held by institutional investors. Comparatively, 70.3% of Credit Acceptance shares are held by institutional investors. 0.8% of Discover Financial Services shares are held by insiders. Comparatively, 5.8% of Credit Acceptance shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Summary

Discover Financial Services beats Credit Acceptance on 10 of the 18 factors compared between the two stocks.

About Discover Financial Services

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.

About Credit Acceptance

Credit Acceptance Corporation provides financing programs, and related products and services to independent and franchised automobile dealers in the United States. The company advances money to dealers in exchange for the right to service the underlying consumer loans; and buys the consumer loans from the dealers and keeps various amounts collected from the consumers. It is also involved in the business of reinsuring coverage under vehicle service contracts sold to consumers by dealers on vehicles financed by the company. Credit Acceptance Corporation was founded in 1972 and is headquartered in Southfield, Michigan.

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