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What's in Store for Discover Financial's (DFS) Q1 Earnings?

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Discover Financial Services (DFS - Free Report) will release first-quarter 2021 results on Apr 21, after market close.

The company reported fourth-quarter 2020 adjusted earnings of $2.59 per share, beating the Zacks Consensus Estimate of $2.37 by 9.3%.

Moreover, the bottom line improved 15% year over year owing to a solid performance by its Direct Banking business. The company also witnessed strong growth in its digital banking model.

Let’s see, how things are shaping up prior to this announcement.

Despite the pandemic, the company is expected to have witnessed an improved sales volume in the to-be-reported quarter owing to grocery, retail and home businesses. The Zacks Consensus Estimate for the March quarter’s top line stands at $27.6 billion, suggesting a 4.5% dip from the prior-year period’s reported number due to supressed sales volume in travel and entertainment categories.

The company is likely to have witnessed a favourable sales trend in its grocery and retail departments.

The Zacks Consensus Estimate for the company’s first-quarter earnings is pegged at $2.77 per share, indicating a favourable projection against the prior-year period’s reported loss of 25 cents.

In the to-be-reported quarter, provision for credit losses is expected to have increased due to the current economic situation.

In the fourth quarter, loan fee income of the company might have suffered pandemic-induced tightened spending. The Zacks Consensus Estimate for loan fee income implies a 10.1% drop from the year-ago quarter’s reported figure.

The Direct Banking segment of the card issuer is likely to have surged on the back of net interest income. The Zacks Consensus Estimate for the same is pegged at $2.7 billion, suggesting an increase of 12.7% from the year-earlier quarter’s reported figure.

The Zacks Consensus Estimate for total network transaction volume hints at a 47.5% decline from the year-ago period’s reported figure due to muted numbers in travel, etc.

The company is likely to have witnessed steep operating expenses in the December quarter due to compensation costs, charges for penalties and restitution, and costs of a voluntary early retirement program, etc.

Discover Financial is expected to have resumed its share buyback program in the first quarter of 2021. On its last earnings call, management had confirmed that its board of directors approved a new $1.1-billion share repurchase plan.

What the Quantitative Model States

Our proven model predicts an earnings beat for Discover Financial this reporting cycle. The combination of a positive Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Discover Financial has an Earnings ESP of +5.13%. This is because the Most Accurate Estimate is pegged at $2.92, higher than the Zacks Consensus Estimate of $2.77.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Discover Financial has a Zacks Rank of 3, which increases the predictive power of ESP.

Other Stocks to Consider

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

Capital One Financial Corporation (COF - Free Report) has an Earnings ESP of +1.47% and is presently Zacks #3 Ranked. The company is scheduled to release first-quarter earnings on Apr 27.

Moodys Corporation (MCO - Free Report) is slated to announce first-quarter earnings on Apr 28. The stock has an Earnings ESP of +2.39% and is a #3 Ranked player, presently.

Virtu Financial, Inc (VIRT - Free Report) is set to report first-quarter earnings on May 4. The stock currently has a Zacks Rank #2 and an Earnings ESP of +3.26%.

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