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Discover Financial's (DFS) Q2 Earnings Miss, Tumble Y/Y

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Discover Financial Services (DFS - Free Report) incurred second-quarter 2020 adjusted loss of $1.20 cents per share. The Zacks Consensus Estimate was of earnings of 5 cents per share. Moreover, the bottom line came against the year-ago quarter’s adjusted earnings of $2.32 per share. The results include a $1.3-billion addition to the allowance for credit losses. This underperformance was due to weak segmental performances.

Operational Update

In the reported quarter, the company’s revenues — net of interest expenses — declined 7% year over year to $2.6 billion due to lower discount and interchange revenues as well as loan fee income. However, the top line beat the Zacks Consensus Estimate by 1.1%.

Total loans dipped 1% year over year to $88.9 billion.

Interest expenses of $482 million decreased 25.3% year over year.

Total operating expenses slid 0.1% to $1.08 billion on the back of lower marketing and business development costs.

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services price-consensus-eps-surprise-chart | Discover Financial Services Quote

Segmental Update

Direct Banking Segment


This segment’s pre-tax loss of $484 million came against the year-ago quarter’s pre-tax income of $941 million. This was due to hike in provision for credit losses as well as weak net interest income.

Total loans slipped 1% year over year to $88.9 billion. Credit card loans declined 3% to $70.2 billion.

Personal loans decreased 1% while private student loans rose 4%, both on a year-over-year basis. Private student loans excluding purchased student loans also shot up 9% year over year.

Net interest income decreased 6% year over year, backed by net interest margin compression.

Net interest margin was 9.81%, down 66 basis points from the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $23 million in the quarter under review, down 50% from the year-earlier period.

Payment Services volume was up 4% from the prior-year period.

PULSE dollar volume expanded 12% year over year, aided by higher average expense per transaction in response to the prevalent COVID-19 pandemic, the impact of stimulus funds accessible to customers and a spurt in e-commerce transactions.

Diners Club volume contracted 48.8% from the year-earlier quarter.

Network Partners volume grew 22%, backed by AribaPay.

Strong Financial Position


Discover Financial had total assets worth $113.7 billion as of Jun 30, 2020, up 2.8% year over year.

Total liabilities as of Jun 30, 2020 were $104.1 billion, up 5% year over year.

Total equity was $9.6 billion on Jun 30, 2020, down 16.1% year over year.

Share Repurchase Update

In response to the coronavirus outbreak, the company suspended its share buyback plan.

Zacks Rank

Discover Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases From Finance Sector

Some stocks worth considering from the finance sector with a perfect mix of elements to surpass estimates in the upcoming quarterly releases are as follows:

Sun Life Financial Inc. (SLF - Free Report) has an Earnings ESP of +1.22% and a Zacks Rank of 3, currently. The company is scheduled to release second-quarter earnings on Aug 6.

Moodys Corporation (MCO - Free Report) is set to report second-quarter earnings on Jul 29. The stock has a Zacks Rank of 3 and an Earnings ESP of +7.17% at present.

American Financial Group, Inc. (AFG - Free Report) is slated to announce second-quarter earnings on Aug 4. The stock has an Earnings ESP of +21.45% and is presently Zacks #3 Ranked.

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