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Why Is Discover Financial (DFS) Down 9.2% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Discover Financial Services (DFS - Free Report) . Shares have lost about 9.2% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Discover Financial Tops Q1 Earnings on Higher Revenues
Discover Financial Services’ first quarter of 2017 earnings of $1.42 per share beat the Zacks Consensus Estimate 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 declined 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 improved 3%. Excluding purchased student loans, however, private student loans grew 12% from the prior-year quarter.
Other income declined 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.
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.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to seven lower.
At this time, Discover Financial's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Why Is Discover Financial (DFS) Down 9.2% Since the Last Earnings Report?
A month has gone by since the last earnings report for Discover Financial Services (DFS - Free Report) . Shares have lost about 9.2% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Discover Financial Tops Q1 Earnings on Higher Revenues
Discover Financial Services’ first quarter of 2017 earnings of $1.42 per share beat the Zacks Consensus Estimate 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 declined 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 improved 3%. Excluding purchased student loans, however, private student loans grew 12% from the prior-year quarter.
Other income declined 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.
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.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to seven lower.
Discover Financial Services Price and Consensus
Discover Financial Services Price and Consensus | Discover Financial Services Quote
VGM Scores
At this time, Discover Financial's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.