Discover Financial Services (NYSE: DFS) and Synchrony Financial (NYSE:SYF) are both large-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their dividends, analyst recommendations, risk, profitability, institutional ownership, valuation and earnings.

Analyst Recommendations

This is a breakdown of current recommendations for Discover Financial Services and Synchrony Financial, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 1 7 15 0 2.61
Synchrony Financial 0 8 15 0 2.65

Discover Financial Services presently has a consensus price target of $73.61, suggesting a potential upside of 27.66%. Synchrony Financial has a consensus price target of $37.08, suggesting a potential upside of 29.86%. Given Synchrony Financial’s stronger consensus rating and higher probable upside, analysts clearly believe Synchrony Financial is more favorable than Discover Financial Services.

Volatility & Risk

Discover Financial Services has a beta of 1.45, meaning that its share price is 45% more volatile than the S&P 500. Comparatively, Synchrony Financial has a beta of 1.01, meaning that its share price is 1% more volatile than the S&P 500.

Profitability

This table compares Discover Financial Services and Synchrony Financial’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%
Synchrony Financial 13.84% 15.30% 2.43%

Insider & Institutional Ownership

86.2% of Discover Financial Services shares are held by institutional investors. Comparatively, 87.2% of Synchrony Financial shares are held by institutional investors. 1.0% of Discover Financial Services shares are held by company insiders. Comparatively, 0.0% of Synchrony Financial shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Dividends

Discover Financial Services pays an annual dividend of $1.40 per share and has a dividend yield of 2.4%. Synchrony Financial pays an annual dividend of $0.60 per share and has a dividend yield of 2.1%. Discover Financial Services pays out 24.2% of its earnings in the form of a dividend. Synchrony Financial pays out 22.6% 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 raised its dividend for 6 consecutive years. Discover Financial Services is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares Discover Financial Services and Synchrony Financial’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Discover Financial Services $7.17 billion 2.99 $2.16 billion $5.79 9.96
Synchrony Financial $7.04 billion 3.23 $2.11 billion $2.65 10.77

Discover Financial Services has higher revenue and earnings than Synchrony Financial. Discover Financial Services is trading at a lower price-to-earnings ratio than Synchrony Financial, indicating that it is currently the more affordable of the two stocks.

Summary

Discover Financial Services beats Synchrony Financial on 10 of the 16 factors compared between the two stocks.

About Discover Financial Services

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.

About Synchrony Financial

Synchrony Financial is a consumer financial services company. The Company provides a range of credit products through programs it has established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers. The Company’s revenue activities are managed through three sales platforms: Retail Card, Payment Solutions and CareCredit. It offers its credit products through its subsidiary, Synchrony Bank (the Bank). Through the Bank, it offers a range of deposit products insured by the Federal Deposit Insurance Corporation (FDIC), including certificates of deposit, individual retirement accounts (IRAs), money market accounts and savings accounts. The Company offers three types of credit products: credit cards, commercial credit products and consumer installment loans. The Company also offers a debt cancellation product. It offers two types of credit cards: private label credit cards and Dual Cards.

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