We recently compiled a list of the 10 Best Credit Card Stocks to Buy Now.In this article, we are going to take a look at where Discover Financial Services (NYSE:DFS) stands against the other credit card stocks.
The market for credit card issuance services has expanded significantly over the last several years. At a CAGR of 9.2%, it will grow from $478.09 billion in 2023 to $522.22 billion in 2024, according to the Business Research Company. Over the coming years, a significant expansion in the market size for credit card issuance services is anticipated. At a CAGR of 8.3%, it will increase to $717.7 billion in 2028, as per the research. Contactless payment usage, data security concerns, cryptocurrency emergence, embedded finance, customization, and personalization are all factors contributing to the growth in the projection period.
The credit card market is still changing, mirroring changes in customer preferences and general economic conditions. According to the Q4 2023 Quarterly Credit Industry Insights Report (CIIR), the average credit card debt per borrower at the end of 2023 was $6,360, a 10% rise YoY. This resulted in a total of $1.13 trillion in credit card debt in the United States the same year. Moreover, the average amount owed by households in the 90th percentile is $11,210, with higher-income households often having larger loads.
According to TransUnion, credit card usage continues to rise, with 167.2 million users expected by mid-2023, representing a substantial rise over the last three years. Furthermore, according to the Federal Reserve Bank of San Francisco, credit cards accounted for 31% of all payments in 2022, although less than 10% of Americans typically utilized cash, according to a December 2023 Forbes Advisor survey.
As per the Federal Reserve Board, credit card delinquency rates have been rising gradually and will reach 3.1% by the end of 2023, the highest level since 2011. Additionally, charge-offs rose in Q2 2024 from 4.16% to 4.38%, a record high of 12.5 years that hasn’t been seen since Q4 2011. Meanwhile, according to Forbes Advisor, the average credit card interest rate in March 2024 was 27.89%, putting financial strain on people with balances.
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In the future, digital payment methods are expected to gain popularity; according to a survey conducted in August 2023, more than half of customers preferred digital wallets over traditional cards. This change shows that credit card companies will continue to innovate, even as concerns about interest rates and debt levels persist.
Overall, as we have also mentioned in our article, “7 Best American Bank Stocks To Buy According to Hedge Funds,” the U.S. market for digital banking platforms was estimated at $1.04 billion in 2024 and is projected to grow at a CAGR of 9.63% to reach $2.04 billion by 2031.
Looking forward, according to a report, credit card spending is predicted to increase in the mid-single digits by 2024, while balances will fall to the mid-to-high single digits after a substantial rise since 2022. If labor markets are steady, credit performance measures are expected to decline during 2024 and stabilize by early 2025. Despite lower inflation, key problems include resumed student debt payments, high interest rates, and growing living costs.
Yanni Koulouriotis, CFA, Vice President – Global FIG stated:
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“Overall, DBRS Morningstar expects a less favorable operating environment for credit card issuers in 2024 as consumer dynamics shift and are less of tailwind to credit card issuer performance. While we expect weaker financial performance in 2024 compared to 2023, we still expect performance to be supportive of current credit ratings.”
Methodology:
We sifted through holdings of credit card ETFs and online rankings to form an initial list of 20 credit card stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stock’s market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
20 Cities Adding the Most Credit Card Debt
A business professional in a suit swiping their credit card at the store.
Discover Financial Services (NYSE:DFS)
Number of Hedge Fund Investors: 68
Market Cap as of September 9: 32.31 billion
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The American bank Discover Financial Services (NYSE:DFS) operates in two different business segments: payment services and direct banking. It is also one of the largest card issuers in the USA. As one of the best credit card stocks to buy, the company produces both credit and debit cards, together with other consumer banking products.
Moreover, it runs the Diners Club, Pulse, and Discover networks. Based on total purchase volume, the Discover network ranks as the fourth-biggest payment network in the US, while Pulse is among the biggest ATM networks in the whole country.
Among its rivals, Discover has continuously produced returns on equity that are among the highest. The company showed resilience in Q2 2024 when it achieved 70% YoY growth in net income to $1.5 billion, mostly from the sale of its portfolio of private student loans and a successful settlement of lawsuits.
Capital One stated earlier this year that it will acquire DFS for $35.3 billion. Consumers may be impacted by the transaction in the future, although the agreement is not anticipated to be finished until late this year or early 2025. The companies are currently seeking permission from authorities and shareholders, and the proposal has already drawn attention from legislators across the political spectrum.
Despite the strong earnings from the American bank, analysts are still fixated on the possible deal. Due to increased competition in the Visa and MasterCard-dominated payment processing market, financial experts feel that the merger could benefit both Capital One and Discover Financial Services (NYSE:DFS). Since issuers would have to compete by providing more alluring credit card advantages, this increased competition may result in improved incentives and rewards for customers.
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Barclays maintained its Equal Weight rating on the shares after the Q2 report 2024 and raised the company’s price target on Discover to $137 from $135. In a research note, the analyst informs investors that the company posted a strong beat and that credit is on pace.
Glenn Greenberg’s Brave Warrior Capital is the largest shareholder in the company, with 3,460,972 shares worth $452.73 million.
Overall DFS ranks 8th on our list of the best credit card stocks to buy. While we acknowledge the potential of DFS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DFS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT:$30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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Disclosure: None. This article is originally published at Insider Monkey.
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Last year, Paramount said it would use $24 billion in funding from Saudi Arabia, Abu Dhabi, and Qatar to help buy WBD.
Now that Paramount has won that deal, it won’t say whether that’s still the plan.
A key Paramount backer suggests that Gulf money would be a good thing for this deal.
We still don’t know if Paramount intends to use billions of dollars from Gulf states like Saudi Arabia to help it buy Warner Bros. Discovery.
But if Paramount does end up doing that, it wouldn’t be a bad thing, says a key Paramount backer.
That update comes via Gerry Cardinale, who heads up RedBird Capital Partners, the private equity company that helped finance Larry and David Ellison’s acquisition of Paramount last year and is doing the same with their WBD deal now.
In a podcast with Puck’s Matt Belloni published Wednesday night, Cardinale wouldn’t comment directly on Paramount’s previously disclosed plans to use $24 billion from sovereign wealth funds controlled by Saudi Arabia, Abu Dhabi, and Qatar to help buy WBD.
Instead, he reiterated Paramount’s current messaging on the deal’s financing: The $47 billion in equity Paramount will use to buy WBD will be “backstopped” by the Ellison family and RedBird — meaning they are ultimately on the hook to pay up. The rest of the $81 billion deal will be financed with debt.
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Cardinale also acknowledged what Paramount has disclosed in its current disclosure documents: It intends to sell portions of that $47 billion commitment to other investors: “We haven’t syndicated anything at this time,” he said. “We do expect to syndicate with strategic, domestic, and foreign investors. But at the end of the day, that alchemy shouldn’t matter because it’ll be done in the right way.”
And when asked about concerns about Middle Eastern countries owning part of a media conglomerate that includes assets like CNN, Cardinale suggested that could be a plus.
“I think we want to be a global company,” he said. “You look at what’s going on right now geopolitically. What’s going on right now geopolitically out of the Middle East wouldn’t be, the positives of that would not be happening without some of those sovereigns that you’re referring to.”
He continued:
“The world is changing. We can stick our head in the sand and pretend it’s not, or we can embrace globalization and the derivative benefits both geopolitically and otherwise that come from that. Content generation coming out of Hollywood is one of America’s greatest exports.I firmly embrace the global nature and orientation that we bring to this from a capital standpoint, from a footprint standpoint, etc. At the end of the day, I do understand some of the concerns that you’ve raised, but that will work itself out between signing and closing because at the end of the day, worst-case scenario, Ellison and RedBird are 100% of this thing.”
All of which suggests to me that Paramount still intends to use money from Gulf-based sovereign wealth funds to buy WBD.
What I don’t understand is why the company won’t say that out loud. Does that mean it’s still negotiating with potential investors? Or that it’s reticent to disclose outside investors, for whatever reason, until it has to? A Paramount rep declined to comment.
Talks on landmark crypto legislation have hit a new impasse after banks said they could not back a compromise pushed by the White House, a development that cast doubt on whether the bill will pass this year and sparked criticism from President Donald Trump who accused lenders of trying to undermine it.
A tenacious team of finance majors, who sacrificed most of their winter break to prepare for the CFA Institute Research Challenge, took first place in that regional competition last week.
Students Hunter Baillargeon, Dylan Fischetto, Richard Opper, Philip Ochocinski and Rushit Chauhan were tasked with researching and analyzing a major utility company, and then producing a 10-page report about whether to buy, hold, or sell its stock. They chose to sell.
One of the CFA judges said both the team’s report and presentation were among the best he had seen in many years.
“As a team, we were thrilled our hard work paid off and our many hours of work allowed us to achieve what we did,’’ Baillargeon said. “What we accomplished couldn’t have been done without working with such a cohesive and collective unit.’’
“From a technical perspective, I realize how valuable true analysis is and the importance of looking where others don’t for a differentiated approach,’’ Baillargeon said.
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The first round of competition featured 24 college teams from the Stamford-Hartford-Providence region. The Stamford team, composed of seniors all of whom all participate in UConn’s Student Managed Fund program, received its first-place award Feb. 26 in a ceremony in Hartford. The team will advance to the East Coast competition later this month.
Stamford Finance Program is Robust
“The Stamford team’s advancement in this competition reflects not only the students’ exceptional talent and work ethic, but also the rigor and applied focus of the UConn finance curriculum,’’ said professor Yiming Qian, head of the Finance Department.
“Our Stamford campus hosts approximately 200 financial management majors. The Stamford program is a vital part of the School and continues to demonstrate outstanding strength,” she said.
Professors Steve Wilson and Jeff Bianchi, who combined have 75 years of experience in the investment industry, were the team’s advisers and were supported by academic director Katherine Pancak.
Wilson said the task of analyzing a utility is particularly complex because of the company’s structure and the regulatory environment in which it operates.
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“I believe the Stamford team stood out because of the depth of their research, and willingness to take a bold stand, including the decision to ‘go out on a limb’ and recommend selling the stock,’’ he said. “They didn’t ‘play it safe.’’’
“This clean-sweep was a true team effort. They were tireless throughout, and sleepless too often, but they never wavered from their desire to always dig deeper and uncover any information that would strengthen our investment case,’’ he said. “What a phenomenal job they did!’’
Competition in Hong Kong Is Ultimate Goal
The Stamford team will compete against Loyola, Canisius, Sacred Heart; Seton Hall, Villanova, St. Michaels, Western New England, University of Maine, Fordham and Penn State next. In total, some 8,000 students are expected to participate in various competitions worldwide, culminating in a championship round in Hong Kong in May.
Wilson said the financial industry is always welcoming of new talent. And when one of the judges told him that the Stamford team produced some of the best work that he’d seen in years, Wilson felt tremendous pride for the students.
“Finance is an open playing field. In investments, the best idea wins,’’ he said.
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Baillargeon said he will always appreciate the whole team’s dedication.
“What I’ll remember most is the help of our advisers and our cohesive, close-knit team where everyone pulled their weight,’’ Baillargeon said. “We put in long hours, did a tremendous amount of research, and collaborated well together. I hope when I enter the workforce I get to work with a team as committed as this one is.’’
