It's been about a year since Discover Financial Services (NYSE: DFS) became a public company. Unfortunately, the stock performance has been miserable -- going from $31 to $13.57.
Yet, the company keeps making money. In the latest quarter, Discover posted net income of $234 million, or $0.48 per share, which compares to $209.2 million, or $0.44 per share in the same period a year ago. The company got a boost from its unloading of its Goldfish card division (a UK credit card company).
No doubt, Discover must deal with the slowing U.S. economy. But, the good news is that the company has been relatively conservative with its credit standards and has long-time customers (which helps provide more stability). However, there is still a rise in delinquencies and charge-offs. For example, overdue loans (for the past 30 days) has gone from 2.71% to 3.54% over the past year.
Now, Discover does have key asset advantage; that is, it operates its own processing network. This is certainly a solid business as people increasing use credit cards and other electronic payments. In fact, Discover recently purchased Diner's Club International, which also has its own processing network.
Unfortunately, Wall Street isn't interested. The belief is that -- as the economy remains sluggish -- there is likely to be a drag on the growth of Discover.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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