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Things Are Looking Up for Discover Financial Services

Discover Financial Services, issuer of Discover credit cards amongst other things, got some much welcomed good news recently when it posted third-quarter profits that beat analysts expectations. Net income rose from $261 million to $649 million year over year. Analysts were looking for earnings per share of $.96 while Discover delivered earnings of a dollar $1.18 per share. Shareholders love that news.

Currently Discover Financial Services is using their increased revenue to repurchase stock and acquire new businesses as they grow their own. Bad loans have dropped precipitously from 8% in August of 2010 to 3.6% in August 2011. Chairman and Chief Executive Officer David Nelms said in a statement, “We achieved record results again this quarter as a result of further improvements in credit performance and record sales volume”.

Defaults fell sharply to $100 million this year compared with $713 million a year ago. That’s an 86% decline and has allowed Discover to repurchase 8.4 million shares of their own stock in the third quarter of 2011.

Consumer purchases using Discover cards has also seen a 9% increase in the third quarter. The third quarter saw $26.3 billion worth of purchases made with Discover cards. Credit card interest income and loans also saw healthy increases while accounts that were late for at least 30 days were cut nearly in half as compared to last year.

In comparison with its three biggest rivals, Discover saw a 37% increase this year. MasterCard came out on top with a 52% increase while Visa gained 30% on the year and American Express gained 12%.

Analysts continue to be bullish on Discover Financial Services citing Discover’s responsible financial management. Their peers, however, still find that they are struggling to maintain a healthy bottom line

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