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

Profitability

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

Net Margins Return on Equity Return on Assets
Discover Financial Services 20.91% 21.28% 2.46%
PHH Corp -55.15% -19.92% -7.22%

Volatility and Risk

Discover Financial Services has a beta of 1.46, indicating that its share price is 46% more volatile than the S&P 500. Comparatively, PHH Corp has a beta of 1.94, indicating that its share price is 94% more volatile than the S&P 500.

Valuation and Earnings

This table compares Discover Financial Services and PHH Corp’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Discover Financial Services $7.17 billion 3.10 $2.16 billion $5.79 10.30
PHH Corp $734.00 million 1.02 -$273.43 million ($5.10) -2.75

Discover Financial Services has higher revenue and earnings than PHH Corp. PHH Corp 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.

Insider and Institutional Ownership

86.8% of Discover Financial Services shares are owned by institutional investors. Comparatively, 96.5% of PHH Corp shares are owned by institutional investors. 1.0% of Discover Financial Services shares are owned by company insiders. Comparatively, 2.5% of PHH Corp shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Dividends

Discover Financial Services pays an annual dividend of $1.20 per share and has a dividend yield of 2.0%. PHH Corp does not pay a dividend. Discover Financial Services pays out 20.7% of its earnings in the form of a dividend. Discover Financial Services has increased its dividend for 6 consecutive years.

Analyst Ratings

This is a breakdown of recent recommendations for Discover Financial Services and PHH Corp, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 1 7 16 0 2.63
PHH Corp 0 1 1 0 2.50

Discover Financial Services presently has a consensus price target of $73.89, suggesting a potential upside of 23.89%. PHH Corp has a consensus price target of $16.25, suggesting a potential upside of 15.91%. Given Discover Financial Services’ stronger consensus rating and higher probable upside, equities research analysts clearly believe Discover Financial Services is more favorable than PHH Corp.

Summary

Discover Financial Services beats PHH Corp on 12 of the 16 factors compared between the two stocks.

Discover Financial Services Company Profile

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.

PHH Corp Company Profile

PHH Corporation is a standalone mortgage company. The Company provides outsourced mortgage banking services to a range of clients, including financial institutions and real estate brokers throughout the United States, and is focused on originating, selling, servicing and subservicing residential mortgage loans through its subsidiary, PHH Mortgage Corporation and its subsidiaries. It operates through two segments: Mortgage Production and Mortgage Servicing. The Mortgage Production segment provides mortgage loan origination services and sells mortgage loans. The Mortgage Servicing segment performs servicing activities for loans originated by the Company and mortgage servicing rights purchased from others, and acts as a subservicer for certain clients that own the underlying mortgage servicing rights. The Mortgage Production segment provides private label mortgage services to financial institutions and real estate brokers, and sources mortgage loans through its retail platform.

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