Forget Robinhood, Buy These 4 Financial Services Stocks Instead

Zero-commission trade pioneer Robinhood Markets Inc. (HOOD) in Menlo Park, Calif., had a lackluster IPO on July 29, 2021, opening at $38 per share. Nevertheless, its shares soared to hit their $85 all-time high on August 4 based on Cathie Wood’s and Redditors’ interest in them. However, HOOD has gained only 22.8% since its opening day to close yesterday’s trading session at $46.67.

Analysts expect its EPS to remain negative in its about-to-be-reported quarter (ended June 30, 2021) and for its fiscal year 2021. Furthermore, HOOD’s trailing-12-month ROTA is negative, compared to the 1.29% industry average. The stock looks highly overvalued at its  current price level, considering the company’s bleak growth prospects. In terms of forward P/S, the stock’s 18.01x is 440.3% higher than the 3.33x industry average. So, we think it  wise to avoid the stock now.

However, rising financial transactions and capital market activities are driving the financial sector’s growth. And the Fed signaled two interest rate hikes as soon as early 2023, which should help financial companies increase their interest income. According to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion this year. So, instead of betting on HOOD, we think it could be wise to bet on shares of quality financial services stocks Discover Financial Services (DFS), Synchrony Financial (SYF), KeyCorp (KEY), and Raymond James Financial, Inc. (RJF). All are well-positioned to capitalize on the industry tailwinds.

Discover Financial Services (DFS)

DFS is a digital banking and payment services company in the United States. The Riverwoods, Ill., concern operates in two segments: Digital Banking and Payment Services. While its  Digital Banking segment offers Discover-branded credit cards, its  Payment Services segment operates the PULSE network, an automated teller machine, debit, and electronic funds transfer network.

On May 18, 2021, Arab Financial Services and DFS signed a strategic network alliance agreement that is expected to increase both organizations' global acceptance footprint. Matt Sloan, vice president of international markets at DFS, said, “By connecting with innovative payment partners like AFS, we are able to provide our cardholders with the global reach and localization they require.”

The company’s total revenue, net of interest expense, increased 34% year-over-year to $3.58 billion for the second quarter, ended June 30, 2021. Its income before taxes grew 6.9% sequentially to $2.22 billion, while its net income increased 9.2% sequentially to $1.69 billion. Also, its EPS came in at $5.55, up 10.1% sequentially.

For its fiscal year 2021, analysts expect DFS’ EPS and revenue to increase 360% and 8.9%, respectively, year-over-year to $16.56 and $12.07 billion. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 149.7% over the past year to close yesterday’s trading session at $130.82.

DFS’ POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

It also has a B grade for Momentum and Sentiment. Click here to see DFS’ ratings for Growth, Stability, Value, and Quality as well. DFS is ranked #8 of 51 stocks in the Consumer Financial Services industry.

Synchrony Financial (SYF)

SYF is a consumer financial services company that provides a range of specialized financing programs and consumer banking products to auto, retail, home, and other industries. The company also offers private label credit cards, dual cards, general purpose co-branded credit cards, and small- and medium-sized business credit products. SYF is headquartered in Stamford, Conn.

On May 24, SYF and CITGO Petroleum Corporation announced a multi-year extension of their strategic partnership, highlighting SYF’s commitment to offering CITGO customers enhanced purchasing options and more benefits. The CEO of SYF’s Payment Solutions segment, Curtis Howse, said, “Our partnership with CITGO has continued to grow through a dynamic environment. We constantly strive to improve customer experience, build functionality, and collaborate with our partners to build brand loyalty.”

The company’s purchase volume increased 35% year-over-year to $42.10 billion for its fiscal second quarter, ended June 30, 2021. Its new accounts grew 58% year-over-year to 6.30 million. SYF’s net earnings came in at $1.2 billion, representing a 2,400% year-over-year increase. The company’s EPS was  $2.12, up 3,433.3% year-over-year.

Analysts expect SYF’s EPS to be  $6.40 in its fiscal year 2021, representing a 168.9% year-over-year increase. In addition, the company’s annual revenue is expected to increase 8% year-over-year to $14.83 billion in its fiscal year 2022. The stock has gained 108.2% over the past year to close yesterday’s trading session at $50.69.

SYF’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system.

The stock has a B grade for Momentum, Sentiment, and Quality. Within the Consumer Financial Services industry, SYF is ranked #9. Click here to see all the additional POWR Ratings for SYF (Growth, Value, and Stability).

KeyCorp (KEY)

KEY operates as the holding company for KeyBank National Association that provides various retail and commercial banking products and services in the United States. The Cleveland, Ohio-based company operates in two segments: Consumer Bank and Commercial Bank. In addition, it offers various deposits, investment products, and services.

The company announced the expansion of its Utilities, Power & Renewables Group on May 3. It said it had added a six-person renewable energy investment banking team. Andy Redinger, head of KEY’s Utilities, Power & Renewable Energy Group, said, "The addition of this highly successful mergers & acquisition team, which will further help broaden our offering and better serve our clients, is an important step towards that commitment."

KEY’s revenue surged 3.3% year-over-year to $1.77 billion for its  fiscal second quarter, ended June 30, 2021. Its non-interest income grew 8.4% year-over-year to $750 million. Its income from continuing operations came in at $698 million, representing a 339% year-over-year increase. Also, its EPS was $0.72, up 350% year-over-year.

Analysts expect KEY’s EPS and revenue to increase 89.8% and 4.5%, respectively, year-over-year to $2.41 and $7.02 billion in its fiscal year 2021. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 62.5% over the past year to close yesterday’s trading session at $20.21.

KEY’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Value. Click here to access KEY’s ratings for Growth, Momentum, Stability, Sentiment, and Quality also. In addition, KEY is ranked #2 of 11 stocks in the Money Center Banks industry.

Raymond James Financial, Inc. (RJF)

RJF in St. Petersburg, Fla., underwrites, distributes, trades, and brokers equity and debt securities in the United States, Canada, and Europe. It operates in five segments: Private Client Group; Capital Markets; Asset Management; RJ Bank; and Other segments.

RJF announced on May 25, 2021, that it had reached an agreement to acquire Cebile Capital, a leading private fund placement agent and secondary-markets advisor to private equity firms. This acquisition reflects the company’s emphasis on growing its investment banking business.

RJF’s  net revenues increased 35% year-over-year to $2.47 billion for its fiscal third quarter, ended June 30, 2021. Its adjusted pre-tax income grew 147% year-over-year to $490 million. And its adjusted net income increased 124% year-over-year to $386 million. The company’s adjusted EPS increased 123% year-over-year to $2.74.

Analysts expect RJF’s EPS to come in at $9.96 in its fiscal year 2021, representing a 63% year-over-year increase. It surpassed the Street’s EPS estimates in each of the trailing four quarters. In addition, the company’s revenue is expected to increase 21.2% year-over-year to $2.52 billion for the quarter ending September 30, 2021. The stock has gained 80.9% over the past year to close yesterday’s trading session at $136.10.

It’s no surprise that RJF has an overall B rating, which equates to Buy in our POWR Rating system. In addition, the stock has a B grade for Momentum and Sentiment.

Click here to see RJF’s ratings for Growth, Value, Quality, and Stability also. In addition, RJF is ranked #8 of 24 stocks in the B-rated Investment Brokerage industry.

DFS shares were trading at $132.17 per share on Wednesday morning, up $0.85 (+0.65%). Year-to-date, DFS has gained 47.23%, versus a 19.39% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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