Discover Financial Services (NYSE: DFS) and Main Street Capital (NYSE:MAIN) are both finance companies, but which is the superior business? We will compare the two companies based on the strength of their analyst recommendations, profitability, valuation, institutional ownership, earnings, dividends and risk.

Institutional & Insider Ownership

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86.4% of Discover Financial Services shares are held by institutional investors. Comparatively, 27.6% of Main Street Capital shares are held by institutional investors. 0.8% of Discover Financial Services shares are held by company insiders. Comparatively, 5.6% of Main Street Capital shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Risk & Volatility

Discover Financial Services has a beta of 1.49, suggesting that its share price is 49% more volatile than the S&P 500. Comparatively, Main Street Capital has a beta of 0.96, suggesting that its share price is 4% 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 1.9%. Main Street Capital pays an annual dividend of $2.28 per share and has a dividend yield of 6.2%. Discover Financial Services pays out 25.9% of its earnings in the form of a dividend. Main Street Capital pays out 76.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Discover Financial Services has raised its dividend for 7 consecutive years and Main Street Capital has raised its dividend for 7 consecutive years.

Analyst Recommendations

This is a summary of recent ratings and price targets for Discover Financial Services and Main Street Capital, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Discover Financial Services 1 5 17 1 2.75
Main Street Capital 1 3 1 0 2.00

Discover Financial Services currently has a consensus price target of $85.59, indicating a potential upside of 15.40%. Main Street Capital has a consensus price target of $37.67, indicating a potential upside of 2.13%. Given Discover Financial Services’ stronger consensus rating and higher possible upside, research analysts clearly believe Discover Financial Services is more favorable than Main Street Capital.

Earnings & Valuation

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Discover Financial Services $11.55 billion 2.28 $2.10 billion $5.41 13.71
Main Street Capital $205.74 million 10.53 $170.62 million $2.99 12.33

Discover Financial Services has higher revenue and earnings than Main Street Capital. Main Street Capital 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.

Profitability

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

Net Margins Return on Equity Return on Assets
Discover Financial Services 17.95% 21.49% 2.36%
Main Street Capital 82.93% 10.34% 6.17%

Summary

Discover Financial Services beats Main Street Capital 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 Main Street Capital

Main Street Capital Corporation (MSCC) is a principal investment firm. MSCC’s principal investment objective is to maximize its portfolio’s total return by generating current income from the Company’s debt investments and capital appreciation from its equity and equity related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. It is primarily focused on providing customized debt and equity financing to lower middle market (LMM) companies and debt capital to middle market (Middle Market) companies. It invests primarily in secured debt investments, equity investments, warrants and other securities of LMM companies and in secured debt investments of Middle Market companies. Its investment portfolio includes its investments in LMM portfolio companies, investments in Middle Market portfolio companies and Other Portfolio investments, among others. MSC Adviser I, LLC is the External Investment Manager.

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