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Discover (DFS) Down 3.3% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Discover (DFS - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Discover due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Discover Financial's Q2 Earnings Miss, Tumble Y/Y
Discover Financial 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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 39.84% due to these changes.
VGM Scores
Currently, Discover has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Discover has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Discover (DFS) Down 3.3% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Discover (DFS - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Discover due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Discover Financial's Q2 Earnings Miss, Tumble Y/Y
Discover Financial 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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 39.84% due to these changes.
VGM Scores
Currently, Discover has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Discover has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.