LendingTree (NASDAQ: TREE) and Discover Financial Services (NYSE:DFS) are both mid-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their valuation, risk, earnings, institutional ownership, analyst recommendations, profitability and dividends.

Earnings and Valuation

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

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
LendingTree $480.69 million 6.41 $73.26 million $2.14 120.07
Discover Financial Services $7.17 billion 3.43 $2.16 billion $5.79 11.39

Discover Financial Services has higher revenue and earnings than LendingTree. Discover Financial Services is trading at a lower price-to-earnings ratio than LendingTree, indicating that it is currently the more affordable of the two stocks.

Profitability

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

Net Margins Return on Equity Return on Assets
LendingTree 5.85% 17.01% 10.47%
Discover Financial Services 20.91% 21.28% 2.46%

Dividends

Discover Financial Services pays an annual dividend of $1.40 per share and has a dividend yield of 2.1%. LendingTree does not pay a dividend. Discover Financial Services pays out 24.2% of its earnings in the form of a dividend. Discover Financial Services has increased its dividend for 6 consecutive years.

Analyst Ratings

This is a summary of current recommendations and price targets for LendingTree and Discover Financial Services, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
LendingTree 0 0 12 0 3.00
Discover Financial Services 1 7 16 0 2.63

LendingTree currently has a consensus target price of $188.91, suggesting a potential downside of 26.48%. Discover Financial Services has a consensus target price of $73.63, suggesting a potential upside of 11.61%. Given Discover Financial Services’ higher probable upside, analysts plainly believe Discover Financial Services is more favorable than LendingTree.

Institutional and Insider Ownership

71.7% of LendingTree shares are held by institutional investors. Comparatively, 85.5% of Discover Financial Services shares are held by institutional investors. 21.9% of LendingTree shares are held by insiders. Comparatively, 1.0% of Discover Financial Services shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Risk and Volatility

LendingTree has a beta of 1.56, suggesting that its stock price is 56% more volatile than the S&P 500. Comparatively, Discover Financial Services has a beta of 1.47, suggesting that its stock price is 47% more volatile than the S&P 500.

Summary

Discover Financial Services beats LendingTree on 10 of the 17 factors compared between the two stocks.

About LendingTree

LendingTree, Inc. (LendingTree) is engaged in operating an online loan marketplace for consumers seeking loans and other credit-based offerings. The Company’s online marketplace provides consumers with access to product offerings from various lenders, which it refers to as Network Lenders, including mortgage loans, home equity loans and lines of credit, reverse mortgage loans, auto loans, credit cards, personal loans, student loans, small business loans and other related offerings. In addition, the Company offers tools and resources, including free credit scores that facilitate comparison shopping for these loans and other credit-based offerings. The Company offers its products in categories, including mortgage products and non-mortgage products. Its mortgage products category includes its purchase and refinance products. Its non-mortgage products include lending products and other products.

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.

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