Head-To-Head Analysis: FirstCash (FCFS) versus Discover Financial Services (DFS)

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

Volatility & Risk

Discover Financial Services has a beta of 1.53, meaning that its share price is 53% more volatile than the S&P 500. Comparatively, FirstCash has a beta of 0.79, meaning that its share price is 21% less 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 1.8%. FirstCash pays an annual dividend of $0.80 per share and has a dividend yield of 1.2%. Discover Financial Services pays out 24.1% of its earnings in the form of a dividend. FirstCash pays out 34.2% 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 increased 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 & Valuation

This table compares Discover Financial Services and FirstCash’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Discover Financial Services $10.50 billion 2.67 $2.39 billion $5.82 13.25
FirstCash $1.09 billion 2.93 $60.12 million $2.34 28.89

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

Profitability

This table compares Discover Financial Services and FirstCash’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%
FirstCash 6.41% 8.45% 5.91%

Analyst Ratings

This is a breakdown of recent ratings and target prices for Discover Financial Services and FirstCash, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 0 6 16 0 2.73
FirstCash 0 2 5 0 2.71

Discover Financial Services presently has a consensus target price of $77.00, suggesting a potential downside of 0.17%. FirstCash has a consensus target price of $64.00, suggesting a potential downside of 5.33%. Given Discover Financial Services’ stronger consensus rating and higher probable upside, equities analysts clearly believe Discover Financial Services is more favorable than FirstCash.

Institutional and Insider Ownership

84.8% of Discover Financial Services shares are held by institutional investors. Comparatively, 95.7% of FirstCash shares are held by institutional investors. 1.0% of Discover Financial Services shares are held by company insiders. Comparatively, 2.8% of FirstCash shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Summary

Discover Financial Services beats FirstCash on 12 of the 17 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 FirstCash

FirstCash, Inc., formerly First Cash Financial Services, Inc., is an operator of retail-based pawn stores in the United States and Latin America. The Company’s primary business is the operation of full-service pawn stores, which make small pawn loans secured by personal property, such as consumer electronics, jewelry, power tools, household appliances, sporting goods and musical instruments. The Company’s operates through two segments: the U.S. operations segment and the Latin America operations segment. The U.S. operations segment consists of all pawn and consumer loan operations in the United States and the Latin America operations segment consists of all pawn and consumer loan operations in Latin America, which includes operations in Mexico, Guatemala and El Salvador. In addition, some of the Company’s pawn stores offer small unsecured consumer loans or credit services products. The Company also operates consumer finance stores in Texas and Mexico.

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