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Discover Financial (DFS) Q1 Earnings: Is a Beat in Store?

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We expect Discover Financial Services (DFS - Free Report) to beat expectations when it reports first-quarter 2017 results on Apr 25, after the market closes.

Why a Likely Positive Surprise?

Our proven model shows that Discover Financial has the right combination of the two key ingredients to beat estimates.

Zacks ESP: Discover Financial has an Earnings ESP of +1.41%. This is because the Most Accurate estimate is pegged at $1.44, while the Zacks Consensus Estimate stands at $1.42. This is a meaningful indicator of a likely positive earnings surprise for the company. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: Discover Financial currently carries a Zacks Rank #3 (Hold). Please note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Discover Financial’s favorable Zacks Rank and positive Earnings ESP makes us confident of an earnings beat this time.

What’s Driving the Better-than-Expected Earnings?

Discover Financial is likely to have witnessed solid revenue growth in its consumer loans business. The upside is expected to be driven by surging enrollment on the recently launched Credit Scorecard.

Revenues from Discover’s PULSE business has likely continued its recent trend of modest growth.

Partnership with Elo in the fourth quarter of 2016 is likely to have boosted its Elo cardholder membership base.

The company also remains committed toward enhancing shareholders’ value. To this end, it undertook share repurchases, which should bolster earnings by reducing the outstanding share count.

Investment in technology to enhance products and processes should translate to top-line growth in the first quarter.

Personal loans are anticipated to have grown significantly on the back of several marketing initiatives, strengthening the top line.

However, Discover Financial’s risingmedical costs for individual ACA-compliant products might have limited marginexpansion, despite the company having taken initiatives to control its operating and marketing expenses.

In addition, rising level of debt is likely to have resulted in an increase in interest expenses in the first quarter, limiting margin expansion.

Non-interest income is expected to have declined, continuing the trend observed in the last few quarters.

Stocks to Consider

Here are some companies from the Finance sector that you may want to consider as they have the right combination of elements to post an earnings beat this quarter:

Zions Bancorporation (ZION - Free Report) , which is expected to report first-quarter earnings on Apr 24, has an Earnings ESP of +1.85% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Reinsurance Group of America, Incorporated (RGA - Free Report) has an Earnings ESP of +1.42% and a Zacks Rank #2. The company is expected to report first-quarter earnings on Apr 27.

Arthur J. Gallagher & Co. (AJG - Free Report) has an Earnings ESP of +2.56% and a Zacks Rank #3. The company is also slated to report first-quarter earnings on Apr 27.

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