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Trouble Ahead in the Finance Sector?

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The Zacks Finance Sector has tumbled more than 17% year-to-date but has still marginally outperformed the S&P 500’s decline of nearly 19%.

Three stocks residing in the sector – Discover Financial Services (DFS - Free Report) , American Express (AXP - Free Report) , and Capital One Financial Corporation (COF - Free Report) – are all slated to release quarterly results this week.

The year-to-date chart below shows the performance of all three companies’ shares while blending in the S&P 500.

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Image Source: Zacks Investment Research

With earnings season kicking off, investors are more than eager to see how companies have continued to sail through the rough economic waters we’ve found ourselves in.

Let’s examine each company a little closer to see how things shape up heading into the quarterly reports.

Discover Financial Services

Discover Financial Services (DFS - Free Report) is currently a Zacks Rank #3 (Hold) with an overall VGM Score of a B. Over the last 60 days, the Consensus Estimate Trend for the upcoming quarter has remained unchanged.

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The Zacks Consensus EPS Estimate resides at $3.74 for the quarter to be reported, penciling in a 32% decrease in quarterly earnings year-over-year.

The quarterly sales estimate also displays some softening; the $3.2 billion estimate notches a 12% double-digit decline from the year-ago quarter.

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Image Source: Zacks Investment Research

Discover sports a low 6.9X forward earnings multiple, nicely below its five-year median value of 9.2X. In addition, the value represents a steep 50% discount relative to its Zacks Sector.

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Image Source: Zacks Investment Research

DFS has primarily reported bottom-line results above expectations, exceeding the Zacks Consensus EPS Estimate in seven straight quarters. Additionally, the company posted a substantial 18% bottom-line beat in its latest quarterly report.

Capital One Financial

Capital One Financial (COF - Free Report) is currently a Zacks Rank #3 (Hold) with an overall VGM Score of a D. Over the last 60 days, analysts have primarily upped their earnings outlook for the quarter, pushing the Consensus Estimate Trend up a marginal 0.4%.

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Image Source: Zacks Investment Research

Currently, the Zacks Consensus EPS Estimate for the quarter stands at $5.10, reflecting a concerning 34% drop in quarterly earnings year-over-year.

However, the top-line appears to be in good shape; the $8.3 billion quarterly revenue estimate notches a 12% double-digit increase from the year-ago quarter.

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Capital One sports a 1.3X forward price-to-sales ratio, well beneath its five-year median of 1.6X and nowhere near highs of 2.7X in 2021. Furthermore, the value represents an attractive 83% discount relative to its Zacks Sector.

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Image Source: Zacks Investment Research

COF has provided consistency within its bottom-line results; over its last seven quarters, the company has exceeded the Zacks Consensus EPS Estimate each time. In its latest quarter, the company surpassed bottom-line expectations by a respectable 4.3%.

American Express

American Express (AXP - Free Report) is a Zacks Rank #3 (Hold) with an overall VGM Score of an A. Over the last 60 days, four analysts have upped their earnings outlook for the quarter to be reported, but the Consensus Estimate Trend has slipped by a marginal 1.3%.

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For the upcoming quarter, the Zacks Consensus EPS Estimate resides at $2.36, penciling in a 15% double-digit decrease in quarterly earnings year-over-year.

Like COF, the company’s top-line appears to be in solid shape; the $12.4 billion quarterly sales estimate reflects a substantial 22% expansion from the year-ago quarter.

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Image Source: Zacks Investment Research

AXP boasts a 14.6X forward P/E ratio, well below its five-year median value of 15.4X and nicely beneath its high of 25.4X in 2020. Furthermore, the value represents a slight 4% premium relative to its Zacks Sector.

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Image Source: Zacks Investment Research

American Express has displayed remarkable consistency, exceeding bottom-line expectations in 18 of its previous 20 quarterly reports. The company posted a strong 12% bottom-line beat in its latest quarter.

Bottom Line

All three companies’ quarterly reports will be watched like a hawk, and for a good reason – the quarterly results will give us a much deeper understanding of consumer sentiment within the finance sector.

In addition, all three companies’ bottom-lines are forecasted to decline quite notably year-over-year, undoubtedly reflecting the challenging macroeconomic backdrop we reside in.


In-Depth Zacks Research for the Tickers Above


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Discover Financial Services (DFS) - free report >>

Capital One Financial Corporation (COF) - free report >>

American Express Company (AXP) - free report >>