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Discover Financial (DFS) Tops Q1 Earnings on Higher Revenues
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Discover Financial Services’ (DFS - Free Report) first-quarter 2017 earnings of $1.43 per share beat the Zacks Consensus Estimate of $1.42 by a penny. The bottom line also improved 6% year over year.
For the reported quarter, the company’s net revenue grew 5.2% year over year to $2.3 billion. The top line also surpassed the Zacks Consensus Estimate by 29%.
Operational Update
For the reported quarter, total loans grew 8% from the prior-year quarter to $75.9 billion.
Credit card loans jumped 7% to $59.8 billion and Discover card sales volume increased 6% from the prior year.
Consumer deposits grew 13% from the year-ago quarter to $37.1 billion.
Payment Services transaction dollar volume was $47.1 billion, up 5% year over year.
Net interest income grew almost 8.1% year over year to $1.9 billion. The upside may be attributed to loan growth and higher net interest margin.
Interest expenses of $386 million grew 15%, mainly due to change in funding mix and higher market rates.
Total other expense decreased 4% to $897 million. This because the decline in marketing and business development, information processing & communications, professional fees, premises and equipment expenses, and other expenses outpaced the rise employee compensation and benefits.
Segment Update
Direct Banking Segment
This segment’s pre-tax income declined 7% to $824 million. This was because higher provision for loan losses and lower other income more than offset the increase in net interest income.
Total loans increased 8% year over year to $75.8 billion. Personal loans grew 20%, credit card loans rose 7%, and private student loans inched up 3%. Excluding purchased student loans, however, private student loans grew 12% from the prior-year quarter.
Other income decreased 8% from the prior year due to higher promotional rewards.
Net interest income increased 8% from the prior year on loan growth and a higher net interest margin. Net interest margin was 10.07%, up 13 basis points from the prior year.
Provision for loan losses of $594 million increased 40.4% from the prior year, primarily because of higher net charge-offs.
Payment Services Segment
Pre-tax income at Discover Financial’s Payment Services segment increased 37% to $44 million. The upside was primarily driven by a reserve release related to a Diners Club International licensee.
Payment Services transaction dollar volume was $47.1 billion, up 5% from the prior year. PULSE transaction dollar volume was up 4% year over year. Diners Club International volume increased 10% from the prior year on growth across all regions.
Discover Financial Services Price, Consensus and EPS Surprise
Among other firms from the space that have already reported results American Express Company (AXP - Free Report) , Visa Inc. (V - Free Report) and SLM Corporation (SLM - Free Report) beat their respective Zacks Consensus Estimate.
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Discover Financial (DFS) Tops Q1 Earnings on Higher Revenues
Discover Financial Services’ (DFS - Free Report) first-quarter 2017 earnings of $1.43 per share beat the Zacks Consensus Estimate of $1.42 by a penny. The bottom line also improved 6% year over year.
For the reported quarter, the company’s net revenue grew 5.2% year over year to $2.3 billion. The top line also surpassed the Zacks Consensus Estimate by 29%.
Operational Update
For the reported quarter, total loans grew 8% from the prior-year quarter to $75.9 billion.
Credit card loans jumped 7% to $59.8 billion and Discover card sales volume increased 6% from the prior year.
Consumer deposits grew 13% from the year-ago quarter to $37.1 billion.
Payment Services transaction dollar volume was $47.1 billion, up 5% year over year.
Net interest income grew almost 8.1% year over year to $1.9 billion. The upside may be attributed to loan growth and higher net interest margin.
Interest expenses of $386 million grew 15%, mainly due to change in funding mix and higher market rates.
Total other expense decreased 4% to $897 million. This because the decline in marketing and business development, information processing & communications, professional fees, premises and equipment expenses, and other expenses outpaced the rise employee compensation and benefits.
Segment Update
Direct Banking Segment
This segment’s pre-tax income declined 7% to $824 million. This was because higher provision for loan losses and lower other income more than offset the increase in net interest income.
Total loans increased 8% year over year to $75.8 billion. Personal loans grew 20%, credit card loans rose 7%, and private student loans inched up 3%. Excluding purchased student loans, however, private student loans grew 12% from the prior-year quarter.
Other income decreased 8% from the prior year due to higher promotional rewards.
Net interest income increased 8% from the prior year on loan growth and a higher net interest margin. Net interest margin was 10.07%, up 13 basis points from the prior year.
Provision for loan losses of $594 million increased 40.4% from the prior year, primarily because of higher net charge-offs.
Payment Services Segment
Pre-tax income at Discover Financial’s Payment Services segment increased 37% to $44 million. The upside was primarily driven by a reserve release related to a Diners Club International licensee.
Payment Services transaction dollar volume was $47.1 billion, up 5% from the prior year. PULSE transaction dollar volume was up 4% year over year. Diners Club International volume increased 10% from the prior year on growth across all regions.
Discover Financial Services Price, Consensus and EPS Surprise
Discover Financial Services Price, Consensus and EPS Surprise | Discover Financial Services Quote
Financial Position
Discover Financial had total assets worth $94.8 billion as of Mar 31, 2017, up 2.7% over year-end 2016.
Total liabilities as of Mar 31, 2017 were $83.5 billion, up 3.1% over year-end 2016.
Total equity was $11.26 billion on Mar 31, 2017, down 0.5% over year-end 2016.
Discover Financial’s return on equity for the first quarter was 20%.
Share Repurchase Update
During the first quarter, the company repurchased approximately 7.4 million shares of common stock for $520 million.
Shares of common stock outstanding declined 1.6% from the prior quarter.
Zacks Rank and Stocks to Consider
Discover Financial presently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other firms from the space that have already reported results American Express Company (AXP - Free Report) , Visa Inc. (V - Free Report) and SLM Corporation (SLM - Free Report) beat their respective Zacks Consensus Estimate.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>