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Discover Financial Services (DFS - Analyst Report) just charged into a new multi-year high, gaining traction on an impressive 51% Q1 earnings surprise. Estimates have since jumped higher, providing more upward momentum for this Zacks #1 rank stock.

Company Description

Discover Financial Services, together with its subsidiaries, operates as a credit card issuer and electronic payment services provider primarily in the United States. The company was founded in 1986 and has a market cap of $14.4 billion.

DFS has been posting huge gains over the last 12 months in the improving consumer environment, with volumes jumping higher are credit losses falling sharply. That trend continued in late June when the company reported strong Q1 results that came in well ahead of expectations.

Record First-Quarter Results

Net interest income for the period was up 4% from last year to $1.2 billion. Revenue net of interest expenses came in at $1.74 billion, up 5% from last year. But earnings is where the real magic happened, coming in at $1.09, 51% ahead of the Zacks Consensus Estimate, where the company has an average earnings surprise of 49% over the last four quarters.

The good quarter was driven by declining delinquency rates, hitting a 25-year low of 2.79% while its net charge off rate fell to 5.01%. Payment Services was also a bright spot, with pretax income up 19% from last year to $43 million.

Buying Shares Back

Discover also announced that the Board of Directors had approved a $1 billion share buy back program for the next two years.


We saw some very bullish movement in estimates off the good quarter, with the current year adding 74 cents to $3.48.


But in spite of the gains, DFS still has tons of value, trading with a forward P/E of 7.7X, a nice discount to its peer average of 8.7X.

12-Month Chart

On the chart, shares recently rebounded from a long-term trend line and jumped into a new multi-year high on the good quarter. Take a look below.

Michael Vodicka is the Momentum Stock Strategist for He is also the Editor in charge of the Zacks Momentum Trader Service.

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