Discover Financial Services is scheduled to release third-quarter 2024 results on Oct. 16, after the closing bell. The Zacks Consensus Estimate for the quarter’s earnings per share is pegged at $3.29, which indicates an improvement of 27% from the prior-year quarter’s reported number. Higher net interest income and non-interest income, driven by receivable growth and higher PULSE transactions, are expected to have benefited its quarterly performance, partially offset by elevated compensation expenses.

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Third-quarter earnings estimates have witnessed five upward revisions over the past month. During this time, the estimates have gained 1.2%. Meanwhile, the Zacks Consensus Estimate for third-quarter revenues is $4.4 billion, implying 7.8% growth from the year-ago quarter’s figure.

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Earnings Surprise History of DFS

Discover Financial’s bottom line beat the consensus estimate in one of the trailing four quarters and missed the mark thrice, the average surprise being negative 5.31%. This is depicted in the figure below:

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, which is the case here.

Earnings ESP: Discover Financial has an Earnings ESP of +4.84% because the Most Accurate Estimate of $3.44 is pegged higher than the Zacks Consensus Estimate of $3.29. You can uncover the best stocks before they are reported with our Earnings ESP Filter.

Zacks Rank: DFS currently carries a Zacks Rank of 3.

Key Factors Likely to Influence DFS’ Q3 Results

The top line of Discover Financial is likely to have benefited on the back of improved net interest income and non-interest income. Net interest income is likely to have gained from growing average receivables and an increase in net interest margin in the third quarter. 

The Zacks Consensus Estimate for net interest income is pegged at $3.55 billion, indicating 6.8% growth from the prior-year quarter’s figure. Our estimate for the metric is $3.57 billion.

Average receivable growth is expected to have received an impetus from continued new account growth and lower payment rates. On the other hand, a lower card promotional balance mix and divestiture of the student loan business are likely to have benefited Discover Financial’s net interest margin. The consensus mark for net interest margin is 11.26%, which indicates an improvement of 31 basis points year over year.

In the third quarter, non-interest income is expected to have benefited on the back of improved discount and interchange revenues and higher transaction processing revenues derived from its PULSE business. A decline in rewards cost is likely to have provided an impetus to DFS’ discount and interchange revenues while an increase in the number of transactions processed on the PULSE network is anticipated to have driven transaction processing revenues. 

The Zacks Consensus Estimate for non-interest income is pegged at $824.9 million, indicating a 14.3% increase year over year. Our estimate for the metric is $772.7 million.  Meanwhile, the consensus mark for the number of transactions processed on the PULSE network implies 17.9% year-over-year growth. 

Yet, Discover Financial’s margins are expected to have taken a hit from an increase in compensation costs and professional fees in the third quarter. Compensation expenses are likely to have escalated due to increased business technology resources whereas professional fees are anticipated to have witnessed an uptick due to increased recovery fees and investments related to compliance and risk management. We anticipate total operating costs to escalate 9.7% year over year .

DFS Stock’s Price Performance

Discover Financial’s shares have gained 30.6% year to date compared with the industry’s 19.7% growth. It has also outperformed the broader Zacks Finance sector’s 17.1% rise and the S&P 500 Index’s 21.9% increase in the said time frame.

YTD Price Performance

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Other Stocks That Warrant a Look

Here are some other companies from the Finance space, which according to our model, have the right combination of elements to beat on earnings this time around:

Virtu Financial, Inc. (VIRT Quick QuoteVIRT - Free Report) has an Earnings ESP of +6.42% and currently flaunts a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for VIRT’s third-quarter 2024 earnings is pegged at 73 cents per share, indicating 62.2% growth from the year-ago quarter’s reported number. 

Virtu Financial’s earnings beat estimates in three of the trailing four quarters and missed the mark once, the average surprise being 9.87%.

SEI Investments Company (SEIC Quick QuoteSEIC - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank of 2 at present. The Zacks Consensus Estimate for SEIC’s third-quarter earnings is pegged at $1.07 per share, indicating a 23% improvement from the year-ago quarter’s reported figure.

SEI Investments’ earnings beat estimates in two of the trailing four quarters and matched the mark twice, the average surprise being 0.76%.

Ameriprise Financial, Inc. (AMP Quick QuoteAMP - Free Report) currently has an Earnings ESP of +0.68% and a Zacks Rank of 2. The Zacks Consensus Estimate for AMP’s third-quarter earnings is $8.87 per share, indicating 15.5% growth from the year-ago quarter’s reported figure.

Ameriprise Financial’s earnings beat estimates in each of the trailing four quarters, the average surprise being 1.55%.