Discover Financial Services’ (DFS - Free Report) third-quarter 2017 earnings of $1.59 per share surpassed the Zacks Consensus Estimate by 4%. The bottom line also rose 2% year over year.
For the reported quarter, the company’s revenue net of interest expenses increased 9.7% year over year to $2.5 billion. The top line also surpassed the Zacks Consensus Estimate by 35%.
Operational Update
Consumer deposits grew 10% from the year-ago quarter to $38.7 billion.
Interest expenses of $426 million jumped 18.7%, mainly due to change in funding mix and higher market rates.
Total other expenses increased 6% to $948 million due to higher employee compensation and benefits, Marketing and Business Development expenses and Information Processing & Communications fees.
Segment Update
Direct Banking Segment
This segment’s pre-tax income declined 7% to $831 million. This was because higher provision for loan losses and operating expenses more than offset higher net interest income.
Total loans increased 9% year over year to $80.4 billion.
Credit card loans rose 9% to $63.5 billion.
Personal loans increased 18%, private student loans increased 2% and jumped 11% excluding purchased student loans, all on a year-over-year basis.
Net interest income increased 12% to $2 billion from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.28%, up 28 basis points.
Total other income decreased 2% to $475 million from the prior-year quarter, driven by higher rewards expense.
Provision for loan losses of $675 million increased 64.8% year over year due to higher net charge-offs and a larger reserve build.
Payment Services Segment
Payment Services pretax income was $36 million in the quarter, up 20% from the year-ago quarter, primarily driven by higher transaction processing revenues and interchange revenues.
Payment Services transaction dollar volume was $51.6 billion, up 16% from the prior year-quarter.
PULSE transaction dollar volume went up 17% year over year.
Diners Club International volume rose 9% from the last-year quarter, driven by continued strength of newer franchise relationships.
Network Partners volume increased 15%, driven by AribaPay.
Discover Financial Services Price, Consensus and EPS Surprise
Financial Position
Discover Financial had total assets worth $97.6 billion as of Sep 30, 2017, up 7.8% year over year.
Total liabilities as of Sep 30, 2017 were $86.4 billion, up 9.1% year over year.
Total equity was $11.2 billion on Sep 30, 2017, down 1.4% year over year.
Discover Financial’s return on equity for the third quarter was 22%.
Share Repurchase Update
During the third quarter, the company repurchased approximately 9.2 million shares of common stock for $555 million.
Shares of common stock outstanding declined 2.4% from the prior quarter.
Zacks Rank and Performance of Other Peers
Discover Financial presently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other players in the Finance sector that have reported their third-quarter earnings so far, American Express Company (AXP - Free Report) , Alliance Data Systems Corporation. and Navient Corporation (NAVI - Free Report) beat their respective Zacks Consensus Estimate.
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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.
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Discover Financial Services’ (DFS - Free Report) third-quarter 2017 earnings of $1.59 per share surpassed the Zacks Consensus Estimate by 4%. The bottom line also rose 2% year over year.
For the reported quarter, the company’s revenue net of interest expenses increased 9.7% year over year to $2.5 billion. The top line also surpassed the Zacks Consensus Estimate by 35%.
Operational Update
Consumer deposits grew 10% from the year-ago quarter to $38.7 billion.
Interest expenses of $426 million jumped 18.7%, mainly due to change in funding mix and higher market rates.
Total other expenses increased 6% to $948 million due to higher employee compensation and benefits, Marketing and Business Development expenses and Information Processing & Communications fees.
Segment Update
Direct Banking Segment
This segment’s pre-tax income declined 7% to $831 million. This was because higher provision for loan losses and operating expenses more than offset higher net interest income.
Total loans increased 9% year over year to $80.4 billion.
Credit card loans rose 9% to $63.5 billion.
Personal loans increased 18%, private student loans increased 2% and jumped 11% excluding purchased student loans, all on a year-over-year basis.
Net interest income increased 12% to $2 billion from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.28%, up 28 basis points.
Total other income decreased 2% to $475 million from the prior-year quarter, driven by higher rewards expense.
Provision for loan losses of $675 million increased 64.8% year over year due to higher net charge-offs and a larger reserve build.
Payment Services Segment
Payment Services pretax income was $36 million in the quarter, up 20% from the year-ago quarter, primarily driven by higher transaction processing revenues and interchange revenues.
Payment Services transaction dollar volume was $51.6 billion, up 16% from the prior year-quarter.
PULSE transaction dollar volume went up 17% year over year.
Diners Club International volume rose 9% from the last-year quarter, driven by continued strength of newer franchise relationships.
Network Partners volume increased 15%, driven by AribaPay.
Discover Financial Services Price, Consensus and EPS Surprise
Financial Position
Discover Financial had total assets worth $97.6 billion as of Sep 30, 2017, up 7.8% year over year.
Total liabilities as of Sep 30, 2017 were $86.4 billion, up 9.1% year over year.
Total equity was $11.2 billion on Sep 30, 2017, down 1.4% year over year.
Discover Financial’s return on equity for the third quarter was 22%.
Share Repurchase Update
During the third quarter, the company repurchased approximately 9.2 million shares of common stock for $555 million.
Shares of common stock outstanding declined 2.4% from the prior quarter.
Zacks Rank and Performance of Other Peers
Discover Financial presently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other players in the Finance sector that have reported their third-quarter earnings so far, American Express Company (AXP - Free Report) , Alliance Data Systems Corporation. and Navient Corporation (NAVI - Free Report) beat their respective Zacks Consensus Estimate.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>
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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