We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Discover Financial (DFS) Beats on Q1 Earnings, Hikes Dividend
Read MoreHide Full Article
Discover Financial Services (DFS - Free Report) reported first-quarter 2022 adjusted earnings of $4.22 per share, which beat the Zacks Consensus Estimate by 17.9%. However, the bottom line plunged 16% year over year.
DFS’s revenues — net of interest expenses — amounted to $2.9 billion, which improved 4% year over year. However, the top line missed the consensus mark by 2.5%.
The quarterly performance was driven by higher net interest income, improved net discount and interchange revenue and growth in loan fee income. Continued strong credit performance combined with sound contributions from the Digital Banking and Payment Services segments contributed to the upside. However, the benefits were partly offset by elevated operating costs and a net loss on equity investments amounting to $162 million.
Discover Financial Services Price, Consensus and EPS Surprise
Operating efficiency came in at 38.9%, which improved 20 basis points (bps) year over year in the first quarter.
Interest expenses of $257 million declined 19% year over year in the quarter under review.
Total operating expenses increased 5% year over year to $1.1 billion mainly due to a rise in marketing and information processing expenses.
Net income of Discover Financial plunged 22% year over year to $1.2 billion in the quarter under review.
Segmental Performance
Digital Banking Segment
The segment reported pre-tax income of $1.7 billion, which declined 15% year over year in the first quarter. The decline was due to increased provision for credit losses and elevated operating expenses, partly offset by higher revenue net of interest expense.
At the first-quarter end, total loans of $93.5 billion advanced 8% year over year. While credit card loans improved 10% year over year, private student loans grew 2% year over year. Meanwhile, personal loans dipped 1% year over year.
Net interest income rose 6% year over year to $149 million on the back of improved average receivables, favorable funding costs and reduced interest charge-offs.
Net interest margin came in at 10.85%, which improved 10 bps year over year in the quarter under review.
Payment Services Segment
The segment's pretax loss of $101 million came against the prior-year quarter’s pretax income of $52 million. Performance of the segment was hurt by reduced revenues stemming from a net loss on equity investments of $162 million. Nevertheless, the downside was partly offset by improved PULSE and Network Partners revenues.
Payment Services volume increased 2% year over year to $77.7 billion for the first quarter.
PULSE dollar volume dipped 1% year over year due to subsiding spend on debit products linked with the end of federal stimulus programs. While Diners Club volume climbed 22% year over year driven by recovery from COVID-induced adversities, better AribaPay volume led to 11% year over year rise in Network Partners volume.
Financial Position (as of Mar 31, 2022)
Discover Financial exited the first quarter with total assets of $107.4 billion, which slipped 6% year over year. The liquidity portfolio (comprising cash and cash equivalents and other investments but excluding cash-in-process) plunged 47% year over year to $14.9 billion.
Total liabilities of nearly $94 billion decreased 8% year over year. Meanwhile, total equity grew 11% year over year to $13.4 billion.
Share Repurchase Update
Discover Financial bought back shares worth $944 million in the first quarter. Shares of common stock outstanding decreased by 2.6% sequentially. Meanwhile, its board of directors has authorized a new share buyback program of $4.2 billion. The new one, replacing the previous program, will run till Jun 30, 2023, but can be ended at any time
Dividend Hike Announced
The board of directors announced a 20% hike in the quarterly dividend. The increased dividend of 60 cents per share will be paid out on Jun 9, 2022, to shareholders of record on May 26.
2022 Guidance
Concurrent with the first-quarter results, DFS revised its 2022 outlook for two of its metrics (net interest margin and net charge-offs). Meanwhile, the guidance for loan growth and operating expense remains unchanged from the prior one.
Net interest margin is estimated to witness improvement within 5-15 bps when compared with the first-quarter 2022 figure, while the previous guidance expected the metric to remain relatively unchanged from the 2021 figure.
The average net charge-off rate is projected to lie between 2.2% and 2.4%, compared with the prior outlook of 2.2-2.6%.
Loan growth is continued to be projected in high-single digits, while the mid-single digit rise forecast for total operating expenses also remain unchanged.
Of the Finance sector players that have reported first-quarter results so far, the bottom line of Synchrony Financial (SYF - Free Report) , American Express Company (AXP - Free Report) and MarketAxess Holdings Inc. (MKTX - Free Report) beat the Zacks Consensus Estimate.
Synchrony Financial reported first-quarter 2022 adjusted earnings per share of $1.73, which surpassed the Zacks Consensus Estimate of $1.53 by 13.1%. The bottom line of SYF remained flat with the year-ago period. Synchrony Financial’s net interest income increased 10.2% year over year to $3,789 million for the quarter under review. It beat the Zacks Consensus Estimate of $3,764 million.
American Express reported first-quarter 2022 earnings of $2.73 per share, which beat the Zacks Consensus Estimate by 12.3%. However, AXP’s bottom line decreased 0.4% year over year. For the quarter under review, American Express’ total revenues net of interest expense increased 29% year over year to $11.7 billion on the back of higher Card Member spending. The top line beat the Zacks Consensus Estimate 0.4%.
MarketAxess reported first-quarter 2022 earnings per share of $1.73, which beat the Zacks Consensus Estimate by 1.8%, driven by revenues and trading volumes. However, MKTX’s bottom line declined from $2.11 per share a year ago. Total revenues of MarketAxess were $186 million for the quarter under review, reflecting a decrease of 4.6% year over year. The figure matched the Zacks Consensus Estimate.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Discover Financial (DFS) Beats on Q1 Earnings, Hikes Dividend
Discover Financial Services (DFS - Free Report) reported first-quarter 2022 adjusted earnings of $4.22 per share, which beat the Zacks Consensus Estimate by 17.9%. However, the bottom line plunged 16% year over year.
DFS’s revenues — net of interest expenses — amounted to $2.9 billion, which improved 4% year over year. However, the top line missed the consensus mark by 2.5%.
The quarterly performance was driven by higher net interest income, improved net discount and interchange revenue and growth in loan fee income. Continued strong credit performance combined with sound contributions from the Digital Banking and Payment Services segments contributed to the upside. However, the benefits were partly offset by elevated operating costs and a net loss on equity investments amounting to $162 million.
Discover Financial Services Price, Consensus and EPS Surprise
Discover Financial Services price-consensus-eps-surprise-chart | Discover Financial Services Quote
Operational Update
Operating efficiency came in at 38.9%, which improved 20 basis points (bps) year over year in the first quarter.
Interest expenses of $257 million declined 19% year over year in the quarter under review.
Total operating expenses increased 5% year over year to $1.1 billion mainly due to a rise in marketing and information processing expenses.
Net income of Discover Financial plunged 22% year over year to $1.2 billion in the quarter under review.
Segmental Performance
Digital Banking Segment
The segment reported pre-tax income of $1.7 billion, which declined 15% year over year in the first quarter. The decline was due to increased provision for credit losses and elevated operating expenses, partly offset by higher revenue net of interest expense.
At the first-quarter end, total loans of $93.5 billion advanced 8% year over year. While credit card loans improved 10% year over year, private student loans grew 2% year over year. Meanwhile, personal loans dipped 1% year over year.
Net interest income rose 6% year over year to $149 million on the back of improved average receivables, favorable funding costs and reduced interest charge-offs.
Net interest margin came in at 10.85%, which improved 10 bps year over year in the quarter under review.
Payment Services Segment
The segment's pretax loss of $101 million came against the prior-year quarter’s pretax income of $52 million. Performance of the segment was hurt by reduced revenues stemming from a net loss on equity investments of $162 million. Nevertheless, the downside was partly offset by improved PULSE and Network Partners revenues.
Payment Services volume increased 2% year over year to $77.7 billion for the first quarter.
PULSE dollar volume dipped 1% year over year due to subsiding spend on debit products linked with the end of federal stimulus programs. While Diners Club volume climbed 22% year over year driven by recovery from COVID-induced adversities, better AribaPay volume led to 11% year over year rise in Network Partners volume.
Financial Position (as of Mar 31, 2022)
Discover Financial exited the first quarter with total assets of $107.4 billion, which slipped 6% year over year. The liquidity portfolio (comprising cash and cash equivalents and other investments but excluding cash-in-process) plunged 47% year over year to $14.9 billion.
Total liabilities of nearly $94 billion decreased 8% year over year. Meanwhile, total equity grew 11% year over year to $13.4 billion.
Share Repurchase Update
Discover Financial bought back shares worth $944 million in the first quarter. Shares of common stock outstanding decreased by 2.6% sequentially. Meanwhile, its board of directors has authorized a new share buyback program of $4.2 billion. The new one, replacing the previous program, will run till Jun 30, 2023, but can be ended at any time
Dividend Hike Announced
The board of directors announced a 20% hike in the quarterly dividend. The increased dividend of 60 cents per share will be paid out on Jun 9, 2022, to shareholders of record on May 26.
2022 Guidance
Concurrent with the first-quarter results, DFS revised its 2022 outlook for two of its metrics (net interest margin and net charge-offs). Meanwhile, the guidance for loan growth and operating expense remains unchanged from the prior one.
Net interest margin is estimated to witness improvement within 5-15 bps when compared with the first-quarter 2022 figure, while the previous guidance expected the metric to remain relatively unchanged from the 2021 figure.
The average net charge-off rate is projected to lie between 2.2% and 2.4%, compared with the prior outlook of 2.2-2.6%.
Loan growth is continued to be projected in high-single digits, while the mid-single digit rise forecast for total operating expenses also remain unchanged.
Zacks Rank
Discover Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Finance Sector Releases
Of the Finance sector players that have reported first-quarter results so far, the bottom line of Synchrony Financial (SYF - Free Report) , American Express Company (AXP - Free Report) and MarketAxess Holdings Inc. (MKTX - Free Report) beat the Zacks Consensus Estimate.
Synchrony Financial reported first-quarter 2022 adjusted earnings per share of $1.73, which surpassed the Zacks Consensus Estimate of $1.53 by 13.1%. The bottom line of SYF remained flat with the year-ago period. Synchrony Financial’s net interest income increased 10.2% year over year to $3,789 million for the quarter under review. It beat the Zacks Consensus Estimate of $3,764 million.
American Express reported first-quarter 2022 earnings of $2.73 per share, which beat the Zacks Consensus Estimate by 12.3%. However, AXP’s bottom line decreased 0.4% year over year. For the quarter under review, American Express’ total revenues net of interest expense increased 29% year over year to $11.7 billion on the back of higher Card Member spending. The top line beat the Zacks Consensus Estimate 0.4%.
MarketAxess reported first-quarter 2022 earnings per share of $1.73, which beat the Zacks Consensus Estimate by 1.8%, driven by revenues and trading volumes. However, MKTX’s bottom line declined from $2.11 per share a year ago. Total revenues of MarketAxess were $186 million for the quarter under review, reflecting a decrease of 4.6% year over year. The figure matched the Zacks Consensus Estimate.