The Discover card, launched by Sears in 1985, has a history of doing things differently. Unlike most credit cards then, Discover didn’t charge an annual fee; it later offered users cashback bonuses on purchases, another novelty at the time, notes Richard Moroney, editor of Dow Theory Forecasts.

Sears eventually sold its financial business to Morgan Stanley (MS), which spun off Discover Financial Services (DFS) in 2007. Discover operates its own network that processes merchant transactions, similar to Visa (V), MasterCard (MA), and American Express (AXP).

Unlike Visa and MasterCard, Discover and AmEx are closed loop operators, meaning they both issue credit and process payments. Discover has a roughly 7% share of active U.S. cardholder accounts and a 4% slice of purchase volume.

Discover depends heavily on U.S. consumer-spending trends, which are supported by upbeat consumer confi dence. The company has delivered double-digit growth in seven straight quarters for per-share profi ts and nine straight quarters for revenue.

Looking ahead, Discover is projected to grow per-share earnings 11% in the September and 10% in the December quarter on sales growth of at least 5%. Total loans rose 7% in the first half of 2019, in line with Discover’s 2019 projection of 6% to 8%.

Loan growth is powered by credit cards, up 7%, with student loans up 3% and personal loans 1%. Credit cards represent about 81% of Discover’s loan portfolio, versus 11% for student loans and 8% for personal loans.

In a June quarter when many lenders reported lower net interest margin, Discover said the spread between what it collects on loans and pays on deposits widened to 10.47% from 10.21% in the year-ago quarter.

Management noted that while deposit costs often keep drifting higher after the Federal Reserve ends its rate hikes, this time they began to creep lower in anticipation of the Fed lowering rates in the second half of 2019.

Encouragingly, Discover said it sees modest upside to its 2019 net-interest-margin target of 10.3%, now viewing 10.35% to 10.39% as a likely range.

In June, Discover announced its 12-month capital return plan, raising its quarterly dividend 10% to $0.44 per share and approving $1.63 billion in stock buybacks. It has grown the dividend at a 14% annual clip over the past five years.

Despite rallying 11% in the past month, the stock has a trailing P/E ratio of just 10, roughly in line with its five-year median and industry median. Notably, the shares have historically performed well when trading at current levels.

Since Discover shares began trading in 2007, they have sported a trailing P/E ratio below 11.5 in 78 month-end periods. After such periods, the stock proceeded to deliver positive 12-month returns 95% of the time, with an average return of 36%.

For the 50 month-end periods when its trailing P/E ratios exceeded 11.5, the shares went on to average flat 12-month returns, rising just 52% of the time. Enjoying strong operating momentum and an attractive valuation, the stock is a Long-Term Buy.

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