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Is a Beat in Store for Discover Financial (DFS) in Q3 Earnings?

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Discover Financial Services (DFS - Free Report) is slated to report third-quarter 2021 results on Oct 20, after the closing bell. The company has outpaced earnings estimates in each of the trailing four quarters.

Factors to Note

The company’s third-quarter revenues are likely to reflect improved sales volume on account of solid performances of retail, and travel and entertainment businesses. New account growth might have contributed to the company’s top-line in the to-be-reported quarter.

The Zacks Consensus Estimate for revenues of Discover Financial is pegged at $2.9 billion, which indicates an improvement of 6.7% from the year-ago quarter.

Strong sales volume and new account growth are expected to have driven loan growth in the third quarter. Quite obviously, loan growth will be accompanied by higher net interest income. Besides, reduced funding costs and lower interest charge-offs are likely to have boosted the net interest income of the company. The consensus mark for the same suggests growth of 4.5% from the prior-year quarter.

The company’s loan fee income is anticipated to have witnessed an uptick in the to-be-reported quarter, courtesy of the gradual economic recovery. The Zacks Consensus Estimate for loan fee income indicates an improvement of 7% from the prior-year reported number.

Consequently, the company’s allowance for loan losses might have gained on the back of better economic conditions, continued strength in credit performance and improved delinquency trends. The Zacks Consensus Estimate for the metric (allowance for loan losses) suggests a decline of 16.3% from the year-ago quarter.

The Digital Banking and Payment Services segments of Discover Financial are likely to have contributed to the company’s third-quarter results. While the Digital Banking segment may have gained on the back of higher net interest income and protection products revenue, increased transaction processing revenues are likely to have driven Payment Services’ performance. The consensus mark for income before taxes across the Digital Banking segment indicates 15.4% improvement from the prior-year reported figure. Meanwhile, the same for Payment Services segment is likely to have increased to nearly four-fold year over year.

The company’s operating expenses may have escalated in the to-be-reported quarter due to higher marketing expenses undertaken for investments in technology and analytics.

The Zacks Consensus Estimate for the company’s third-quarter earnings stands at $3.31 per share, which reflects growth of 35.1% from the year-ago quarter.

What Our Quantitative Model Unveils

Our proven model predicts an earnings beat for Discover Financial this time around. 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.

Earnings ESP: Discover Financial has an Earnings ESP of +2.25%. This is because the Most Accurate Estimate of $3.38 is pegged higher than the Zacks Consensus Estimate of $3.31. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Discover Financial carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider       

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

Houlihan Lokey, Inc. (HLI - Free Report) has an Earnings ESP of +5.69% and a Zacks Rank of 1.

Capital One Financial Corporation (COF - Free Report) has an Earnings ESP of +6.53% and a Zacks Rank #2.

Cboe Global Markets, Inc. (CBOE - Free Report) has an Earnings ESP of +5.67% and a Zacks Rank #2.