Discover Financial Services (NYSE:DFS) versus Bread Financial (NYSE:BFH) Financial Comparison

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Discover Financial Services	14.30%	22.24%	2.08%
Bread Financial	13.87%	26.24%	3.34%

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Discover Financial Services and Bread Financial, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Discover Financial Services	0	10	7	0	2.41
Bread Financial	4	7	2	0	1.85

Discover Financial Services currently has a consensus target price of $124.18, indicating a potential downside of 1.34%. Bread Financial has a consensus target price of $36.08, indicating a potential upside of 1.70%. Given Bread Financial’s higher probable upside, analysts plainly believe Bread Financial is more favorable than Discover Financial Services.

Institutional & Insider Ownership

86.9% of Discover Financial Services shares are held by institutional investors. Comparatively, 99.5% of Bread Financial shares are held by institutional investors. 0.7% of Discover Financial Services shares are held by insiders. Comparatively, 0.2% of Bread Financial shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Earnings & Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Discover Financial Services	$20.61 billion	1.53	$2.94 billion	$11.25	11.19
Bread Financial	$5.17 billion	0.34	$718.00 million	$14.32	2.48

Discover Financial Services has higher revenue and earnings than Bread Financial. Bread Financial 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.

Dividends

Discover Financial Services pays an annual dividend of $2.80 per share and has a dividend yield of 2.2%. Bread Financial pays an annual dividend of $0.84 per share and has a dividend yield of 2.4%. Discover Financial Services pays out 24.9% of its earnings in the form of a dividend. Bread Financial pays out 5.9% 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 13 consecutive years. Bread Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk and Volatility

Discover Financial Services has a beta of 1.45, suggesting that its stock price is 45% more volatile than the S&P 500. Comparatively, Bread Financial has a beta of 1.93, suggesting that its stock price is 93% more volatile than the S&P 500.

Summary

Discover Financial Services beats Bread Financial on 9 of the 17 factors compared between the two stocks.

About Discover Financial Services

Discover Financial Services, through its subsidiaries, provides digital banking products and services, and payment services in the United States. It operates in two segments, Digital Banking and Payment Services. The Digital Banking segment offers Discover-branded credit cards to individuals; private student loans, personal loans, home loans, and other consumer lending; and direct-to-consumer deposit products comprising savings accounts, certificates of deposit, money market accounts, IRA certificates of deposit, IRA savings accounts and checking accounts, and sweep accounts. The Payment Services segment operates the PULSE to access automated teller machines, debit, and electronic funds transfer network; and Diners Club International, a payments network that issues Diners Club branded charge cards and/or provides card acceptance services, as well as offers payment transaction processing and settlement services. The company was incorporated in 1960 and is based in Riverwoods, Illinois.

About Bread Financial

Bread Financial Holdings, Inc. provides tech-forward payment and lending solutions to customers and consumer-based industries in North America. It offers credit card and other loans financing services, including risk management solutions, account origination, and funding services for private label and co-brand credit card programs, as well as through Bread partnerships; and Comenity-branded general purpose cash-back credit. The company also manages and services the loans it originates for private label, co-brand, and general-purpose credit card programs, and installment loans and split-pay products; and provides marketing, and data and analytics services. In addition, it offers an enhanced digital suite that includes a unified software development kit, which provides access to its suite of products, as well as promotes credit payment options earlier in the shopping experience. Further, the company through Bread, a digital payments platform and robust suite of application programming interfaces allows merchants and partners to integrate online point-of-sale financing and other digital payment products. It offers its products under the Bread CashbackTM, Bread PayTM, and Bread SavingsTM brands. The company was formerly known as Alliance Data Systems Corporation and changed its name to Bread Financial Holdings, Inc. in March 2022. Bread Financial Holdings, Inc. was incorporated in 1995 and is headquartered in Columbus, Ohio.