Discover Financial Services’ (DFS - Free Report) second-quarter 2017 earnings of $1.40 per share missed the Zacks Consensus Estimate by 3.4%. Bottom line also declined 4.8% year over year.
For the reported quarter, the company’s revenue net of interest expenses increased 9.2% year over year to $2.4 billion. Top line also surpassed the Zacks Consensus Estimate by 32%.
Operational Update
For the reported quarter, total loans increased 8% from the prior-year quarter to $78 billion.
Credit card loans jumped 8% to $61.8 billion and Discover card sales volume increased 5% from the prior year.
Consumer deposits grew 11% from the year-ago quarter to $37.7 billion.
Payment Services transaction dollar volume was $50.1 billion, up 12% year over year.
Net interest income grew almost 10.7% year over year to $1.9 billion. The upside may be attributed to increased interest income.
Interest expenses of $400 million jumped 18%, mainly due to change in funding mix and higher market rates.
Total other expenses increased 0.7% to $912 million due to higher employee compensation and benefits, and professional fees.
Segment Update
Direct Banking Segment
This segment’s pre-tax income declined 4% to $831 million. This was because of higher provision for loan losses.
Total loans increased 8% year over year to $78 billion. Credit card loans rose 8% to $61.8 billion. Personal loans increased 22%, Private student loans increased 2% and jumped 12% excluding purchased student loans, all on a year-over-year basis.
Other income increased 3% from the prior year, driven by higher discount and interchange revenues.
Net interest income increased 11% from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.11%, up 16 basis points from the prior year.
Provision for loan losses of $639 million increased 55% from the prior year primarily because of higher net charge-offs.
Payment Services Segment
Payment Services pretax income was $36 million in the quarter, up 20% from the prior year, primarily driven by higher transaction processing revenues and lower operating expenses.
Payment Services transaction dollar volume was $50.1 billion, up 12% from the prior year.
PULSE transaction dollar volume went up 15% year over year.
Diners Club International volume rose 8% from the prior year, driven by growth across all regions.
Discover Financial Services Price, Consensus and EPS Surprise
Financial Position
Discover Financial had total assets worth $93.7 billion as of Jun 30, 2017, up 7.1% year over year.
Total liabilities as of Jun 30, 2017 were $82.5 billion, up 8.4% year over year.
Total equity was $11.2 billion on Jun 30, 2017, down 1.2% year over year.
Discover Financial’s return on equity for the second quarter was 19%.
Share Repurchase Update
During the second quarter, the company repurchased approximately 7.2 million shares of common stock for $450 million.
Shares of common stock outstanding declined 1.9% from the prior quarter.
Zacks Rank and Stocks to Consider
Discover Financial presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other firms in the same space that have already reported results include American Express Company (AXP - Free Report) , Visa Inc. (V - Free Report) and SLM Corporation (SLM - Free Report) . American Express and Visa’s bottom line beat their respective Zacks Consensus Estimate, while SLM Corp’s earnings met expectations.
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Discover Financial Services’ (DFS - Free Report) second-quarter 2017 earnings of $1.40 per share missed the Zacks Consensus Estimate by 3.4%. Bottom line also declined 4.8% year over year.
For the reported quarter, the company’s revenue net of interest expenses increased 9.2% year over year to $2.4 billion. Top line also surpassed the Zacks Consensus Estimate by 32%.
Operational Update
For the reported quarter, total loans increased 8% from the prior-year quarter to $78 billion.
Credit card loans jumped 8% to $61.8 billion and Discover card sales volume increased 5% from the prior year.
Consumer deposits grew 11% from the year-ago quarter to $37.7 billion.
Payment Services transaction dollar volume was $50.1 billion, up 12% year over year.
Net interest income grew almost 10.7% year over year to $1.9 billion. The upside may be attributed to increased interest income.
Interest expenses of $400 million jumped 18%, mainly due to change in funding mix and higher market rates.
Total other expenses increased 0.7% to $912 million due to higher employee compensation and benefits, and professional fees.
Segment Update
Direct Banking Segment
This segment’s pre-tax income declined 4% to $831 million. This was because of higher provision for loan losses.
Total loans increased 8% year over year to $78 billion. Credit card loans rose 8% to $61.8 billion. Personal loans increased 22%, Private student loans increased 2% and jumped 12% excluding purchased student loans, all on a year-over-year basis.
Other income increased 3% from the prior year, driven by higher discount and interchange revenues.
Net interest income increased 11% from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.11%, up 16 basis points from the prior year.
Provision for loan losses of $639 million increased 55% from the prior year primarily because of higher net charge-offs.
Payment Services Segment
Payment Services pretax income was $36 million in the quarter, up 20% from the prior year, primarily driven by higher transaction processing revenues and lower operating expenses.
Payment Services transaction dollar volume was $50.1 billion, up 12% from the prior year.
PULSE transaction dollar volume went up 15% year over year.
Diners Club International volume rose 8% from the prior year, driven by growth across all regions.
Discover Financial Services Price, Consensus and EPS Surprise
Financial Position
Discover Financial had total assets worth $93.7 billion as of Jun 30, 2017, up 7.1% year over year.
Total liabilities as of Jun 30, 2017 were $82.5 billion, up 8.4% year over year.
Total equity was $11.2 billion on Jun 30, 2017, down 1.2% year over year.
Discover Financial’s return on equity for the second quarter was 19%.
Share Repurchase Update
During the second quarter, the company repurchased approximately 7.2 million shares of common stock for $450 million.
Shares of common stock outstanding declined 1.9% from the prior quarter.
Zacks Rank and Stocks to Consider
Discover Financial presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other firms in the same space that have already reported results include American Express Company (AXP - Free Report) , Visa Inc. (V - Free Report) and SLM Corporation (SLM - Free Report) . American Express and Visa’s bottom line beat their respective Zacks Consensus Estimate, while SLM Corp’s earnings met expectations.
More Stock News: Tech Opportunity Worth $386 Billion in 2017
From driverless cars to artificial intelligence, we've seen an unsurpassed growth of high-tech products in recent months. Yesterday's science-fiction is becoming today's reality. Despite all the innovation, there is a single component no tech company can survive without. Demand for this critical device will reach $387 billion this year alone, and it's likely to grow even faster in the future.
Zacks has released a brand-new Special Report to help you take advantage of this exciting investment opportunity. Most importantly, it reveals 4 stocks with massive profit potential.See these stocks now>>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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