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What's in Store for Discover Financial's (DFS) Q2 Earnings?

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

The company reported first-quarter 2021 adjusted earnings of $5.04 per share, beating the Zacks Consensus Estimate of $2.88 by a whopping 75%. The bottom line rebounded from the year-ago quarter’s loss of 25 cents per share. Results were driven by a solid credit performance, impressive growth in sales and a strong execution on operating and funding costs.

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

The company is expected to have witnessed an improved sales volume in the to-be-reported quarter owing to a surge in grocery, retail and home businesses. The Zacks Consensus Estimate for the June quarter’s top line stands at $27.9 billion, suggesting a 4.8% rise from the prior-year period’s reported figure owing to better net interest income and a solid contribution from its Direct Banking segment.

The Zacks Consensus Estimate for the company’s second-quarter earnings is pegged at $3.58 per share, indicating a favorable projection against the prior-year period’s reported loss of $1.20.

In the to-be-reported quarter, allowance for loan losses is expected to have declined owing to comparatively better economic condition. The consensus mark for the same suggests a drop of 12.5% from the year-ago quarter’s reported figure.

Loan fee income of the company might have improved on higher spending by customers. The Zacks Consensus Estimate for loan fee income implies a 22.4% rise from the year-ago quarter’s reported figure.

On the last earnings call, management had said that the company will accelerate its share buyback activity in the second quarter. This is expected to have provided some cushion to the company’s earnings.

The Direct Banking segment of this card issuer is likely to have progressed on the back of net interest income. The Zacks Consensus Estimate for income before taxes pertaining to the segment is pegged at $1.5 billion, indicating a northbound forecast against the year-earlier quarter’s reported loss of $484 million.

The Zacks Consensus Estimate for total network transaction volume of Discover Network – proprietary hints at a 9.2% rise from the year-ago period’s reported figure on the back of better travel volumes.

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

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 +5.16%. This is because the Most Accurate Estimate is pegged at $3.76, higher than the Zacks Consensus Estimate of $3.58.  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 #3, which increases the predictive power of ESP.

Other Stocks to Consider

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:

Ally Financial Inc. (ALLY - Free Report) has an Earnings ESP of +6.64% and a Zacks Rank #2, currently.  

Capital One Financial Corporation (COF - Free Report) has an Earnings ESP of +3.71% and a Zacks Rank of 3 at present.

MR. COOPER GROUP INC (COOP - Free Report) has an Earnings ESP of +0.52% and is currently Zacks #3 Ranked.

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