Discover Financial Services (NYSE: DFS) and Stonegate Mortgage (NYSE:SGM) are both finance companies, but which is the superior business? We will compare the two businesses based on the strength of their valuation, analyst recommendations, institutional ownership, profitability, risk, earnings and dividends.

Insider & Institutional Ownership

85.0% of Discover Financial Services shares are owned by institutional investors. Comparatively, 44.3% of Stonegate Mortgage shares are owned by institutional investors. 1.0% of Discover Financial Services shares are owned by insiders. Comparatively, 44.5% of Stonegate Mortgage shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Valuation and Earnings

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Discover Financial Services $10.50 billion 2.55 $2.39 billion $5.82 12.66
Stonegate Mortgage N/A N/A N/A $1.16 6.89

Discover Financial Services has higher revenue and earnings than Stonegate Mortgage. Stonegate Mortgage 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.

Risk and Volatility

Discover Financial Services has a beta of 1.53, indicating that its stock price is 53% more volatile than the S&P 500. Comparatively, Stonegate Mortgage has a beta of 1.45, indicating that its stock price is 45% more volatile than the S&P 500.

Dividends

Discover Financial Services pays an annual dividend of $1.40 per share and has a dividend yield of 1.9%. Stonegate Mortgage does not pay a dividend. Discover Financial Services pays out 24.1% of its earnings in the form of a dividend. Discover Financial Services has raised its dividend for 6 consecutive years.

Profitability

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

Net Margins Return on Equity Return on Assets
Discover Financial Services 20.04% 21.01% 2.38%
Stonegate Mortgage -13.22% -6.70% -1.57%

Analyst Ratings

This is a summary of current ratings and price targets for Discover Financial Services and Stonegate Mortgage, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 0 7 16 0 2.70
Stonegate Mortgage 0 0 0 0 N/A

Discover Financial Services currently has a consensus target price of $76.26, suggesting a potential upside of 3.52%. Given Discover Financial Services’ higher possible upside, equities analysts plainly believe Discover Financial Services is more favorable than Stonegate Mortgage.

Summary

Discover Financial Services beats Stonegate Mortgage on 11 of the 13 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.

Stonegate Mortgage Company Profile

Stonegate Mortgage Corporation is a non-bank mortgage company. The Company is focused on originating, financing and servicing the United States residential mortgage loans. The Company’s segments include Originations, Servicing, Financing and Other. The Originations segment primarily originates and sells residential mortgage loans, which conform to the underwriting guidelines of the government sponsored enterprises and government agencies, and non-agency whole loan investors. The Servicing segment includes loan administration, collection and default activities, including the collection and remittance of loan payments, responding to customer inquiries, collection of principal and interest payments, holding custodial funds for the payment of property taxes and insurance premiums, counseling delinquent mortgagors and modifying loans. The Financing segment includes warehouse-lending activities to correspondent customers by the Company’s subsidiary, NattyMac, LLC.

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