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On Feb 18, 2014, Discover Financial Services (DFS - Analyst Report) reached a new 52-week high of $57.63 after delivering a solid fourth-quarter 2013 earnings results, which included a 5.13% posting positive earnings surprise. With respect to earnings trend, this financial service providing company witnessed positive earnings surprises in three of the last four quarters, with an average beat of 9.11%.

During fourth-quarter 2013, Discover Financial’s top line rose 6% to $2.1 billion on a year-over-year basis and also surpassed the Zacks Consensus Estimate by 20.7%. The upside was driven by loan growth and higher net interest margin in the Direct Banking segment as well as higher card sales.

Discover Financial witnessed an improvement in card sales volume during the quarter buoyed by higher wallet share with the prevailing customers as well as by receiving new accounts. Moreover, the loan portfolio of the company remained quite strong. Increase in credit card loans, private student loans and personal loans boosted the overall loan growth. Also, there was an improvement in charge-off rate and provision for losses, reflecting higher recovery.

Increase in assets, shareholders’ equity and book value strengthened the company’s balance sheet. Discover Financial also maintained its steady capital deployment strategy through share repurchases and dividend payout.  

The Zacks Consensus Estimate for 2014 and 2015 moved up riding on the strength of solid earnings results. While it increased 1.4% to $5.16 for 2014 over the last 30 days, it moved up 1.3% to $5.47 for 2015. The estimates translate to a year-over-year improvement of 4.03% and 6%, respectively.

Going forward, the launch of products like Cashback, home equity installment loans and the initiation of the FICO scores on the “Discover it” cards are expected to help Discover Financial generate more revenues, making way for long-term growth.

The overall long-term earnings growth rate for this stock is projected at 10.7%. The stock gained almost 50% in the 1-year period.

Discover Financial currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the financial services space include World Acceptance Corp. (WRLD - Snapshot Report), Fortress Investment Group LLC (FIG - Snapshot Report) and Lazard Ltd. (LAZ - Analyst Report). While Fortress Investment and Lazard sport a Zacks Rank #1 (Strong Buy), World Acceptance carries the same Zacks Rank as Discover Financial.

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