Discover Financial Services (NYSE:DFS) and Capital One Financial (NYSE:COF) are both large-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their institutional ownership, risk, earnings, valuation, profitability, analyst recommendations and dividends.
Analyst Ratings
This is a summary of recent ratings and target prices for Discover Financial Services and Capital One Financial, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score |
|---|
| Discover Financial Services | 1 | 4 | 11 | 0 | 2.63 |
| Capital One Financial | 0 | 3 | 13 | 0 | 2.81 |
Discover Financial Services presently has a consensus price target of $63.6429, indicating a potential upside of 31.55%. Capital One Financial has a consensus price target of $86.1875, indicating a potential upside of 41.76%. Given Capital One Financial's stronger consensus rating and higher possible upside, analysts plainly believe Capital One Financial is more favorable than Discover Financial Services.
Profitability
This table compares Discover Financial Services and Capital One Financial's net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets |
|---|
| Discover Financial Services | 15.39% | 20.38% | 1.93% |
| Capital One Financial | 8.26% | 5.73% | 0.85% |
Earnings and Valuation
This table compares Discover Financial Services and Capital One Financial's revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio |
|---|
| Discover Financial Services | $13.99 billion | 1.06 | $2.96 billion | $9.08 | 5.33 |
| Capital One Financial | $33.77 billion | 0.82 | $5.55 billion | $12.09 | 5.03 |
Capital One Financial has higher revenue and earnings than Discover Financial Services. Capital One Financial 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.
Dividends
Discover Financial Services pays an annual dividend of $1.76 per share and has a dividend yield of 3.6%. Capital One Financial pays an annual dividend of $1.60 per share and has a dividend yield of 2.6%. Discover Financial Services pays out 19.4% of its earnings in the form of a dividend. Capital One Financial pays out 13.2% 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. Discover Financial Services has increased its dividend for 9 consecutive years. Discover Financial Services is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Institutional & Insider Ownership
82.6% of Discover Financial Services shares are held by institutional investors. Comparatively, 89.1% of Capital One Financial shares are held by institutional investors. 0.6% of Discover Financial Services shares are held by insiders. Comparatively, 1.5% of Capital One Financial shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.
Risk and Volatility
Discover Financial Services has a beta of 1.88, suggesting that its share price is 88% more volatile than the S&P 500. Comparatively, Capital One Financial has a beta of 1.75, suggesting that its share price is 75% more volatile than the S&P 500.
Summary
Capital One Financial beats Discover Financial Services on 10 of the 17 factors compared between the two stocks.
