Capital One Financial (NYSE:COF) and Discover Financial Services (NYSE:DFS) are both large-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their earnings, dividends, profitability, institutional ownership, risk, analyst recommendations and valuation.
Analyst Recommendations
This is a summary of recent ratings and target prices for Capital One Financial and Discover Financial Services, as reported by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score |
|---|
| Capital One Financial | 0 | 2 | 14 | 0 | 2.88 |
| Discover Financial Services | 0 | 8 | 8 | 0 | 2.50 |
Capital One Financial presently has a consensus target price of $123.1429, suggesting a potential downside of 7.99%. Discover Financial Services has a consensus target price of $92.5714, suggesting a potential downside of 7.57%. Given Discover Financial Services' higher probable upside, analysts plainly believe Discover Financial Services is more favorable than Capital One Financial.
Profitability
This table compares Capital One Financial and Discover Financial Services' net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets |
|---|
| Capital One Financial | 4.08% | 3.05% | 0.43% |
| Discover Financial Services | 7.89% | 11.00% | 0.90% |
Earnings & Valuation
This table compares Capital One Financial and Discover Financial Services' gross revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio |
|---|
| Capital One Financial | $33.77 billion | 1.82 | $5.55 billion | $12.09 | 11.11 |
| Discover Financial Services | $13.99 billion | 2.20 | $2.96 billion | $9.08 | 11.05 |
Capital One Financial has higher revenue and earnings than Discover Financial Services. Discover Financial Services is trading at a lower price-to-earnings ratio than Capital One Financial, indicating that it is currently the more affordable of the two stocks.
Risk and Volatility
Capital One Financial has a beta of 1.72, meaning that its share price is 72% more volatile than the S&P 500. Comparatively, Discover Financial Services has a beta of 1.8, meaning that its share price is 80% more volatile than the S&P 500.
Dividends
Capital One Financial pays an annual dividend of $1.60 per share and has a dividend yield of 1.2%. Discover Financial Services pays an annual dividend of $1.76 per share and has a dividend yield of 1.8%. Capital One Financial pays out 13.2% of its earnings in the form of a dividend. Discover Financial Services pays out 19.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Capital One Financial has increased its dividend for 1 consecutive years and Discover Financial Services has increased its dividend for 1 consecutive years.
Institutional & Insider Ownership
89.6% of Capital One Financial shares are held by institutional investors. Comparatively, 84.7% of Discover Financial Services shares are held by institutional investors. 1.5% of Capital One Financial shares are held by company insiders. Comparatively, 0.6% of Discover Financial Services shares are held by company 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
Capital One Financial beats Discover Financial Services on 9 of the 16 factors compared between the two stocks.
