Discover Financial Services DFS is looking to divest its student loan business following some regulatory issues, per Bloomberg. The business includes a $10.2 billion private student loan portfolio and is expected to garner interest from other student loan platforms and alternative asset managers.
Although the streamlining move can free up $2-$3 billion of capital for the company, it may choose to not sell the business after much deliberation, per the report. However, analysts think a divestment deal at the right price can be sensible for the company, which will help it find a solution for the outstanding compliance drawbacks.
An internal review of its compliance, risk management and corporate governance areas remains underway, due to which DFS had put a temporary hold on its share buyback program. It announced the departure of chief executive officer Roger Hochschild last month, who was replaced by board member John Owen on an interim basis.
The company’s student loan unit has faced regulatory scrutiny in the past as well. It is one of the few companies offering private student loans. This portfolio possesses a lower write-off rate than its credit card and personal loan books, per the report. However, analysts are wondering whether the company will continue its student-loan operations as it also intends to simplify its offerings.
The company is expected to continue optimizing its business, keeping in mind the returns and capital usage. A streamlining move can also reduce its debt burden, which was at $20.3 billion as of Jun 30, 2023. Management is seeking to build an improved risk and compliance framework.
Discover Financial’s shares have lost 12.2% in the past year against the 2% rise of the industry.
Image Source: Zacks Investment Research
Zacks Rank & Key Picks
Discover Financial currently has a Zacks Rank #3 (Hold). Some better-ranked players in the broader Finance space are PROG Holdings, Inc. PRG, Credit Acceptance Corporation CACC and Mr. Cooper Group Inc. COOP, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PROG Holdings’ current year earnings indicates 23.5% year-over-year growth. In the past 60 days, PRG has witnessed five upward estimate revisions against none in the opposite direction. It beat earnings estimates in all the past four quarters, with an average of 30.7%.
The Zacks Consensus Estimate for Credit Acceptance’s current year earnings has improved by a penny in the past 30 days. It has witnessed one upward estimate revision during this time against no movement in the opposite direction. Also, the consensus mark for CACC’s revenues in 2023 suggests 4.2% year-over-year growth.
The consensus mark for Mr. Cooper’s current year earnings indicates a 173% year-over-year increase. It has witnessed three upward estimate revisions in the past 60 days against no downward movement. Furthermore, COOP beat earnings estimates in all the past four quarters, with an average of 17.3%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report