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Discover Financial (DFS) Q4 Earnings: Is a Beat in Store?

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Discover Financial Services (DFS - Free Report) will release fourth-quarter 2017 results on Jan 24, after market close.

A major credit card issuer in the United States, Discover Financial has been witnessing continuous growth in card sales over the past many years, adding to its revenue base. The same trend is expected to continue in the fourth quarter as well. The Zacks Consensus Estimate for card sales is pegged at $34 billion, reflecting year-over-year growth of 4.6%.

The company’s Payments Service segment has been underperforming over the past few years. Nevertheless, Discover Financial has been taking measures to turn this segment profitable, as evident from its decent performance in the last quarter. The Zacks Consensus Estimate for the segment’s total transaction volume stands at $50.4 billion, reflecting year-over-year growth of 9.4%.

Other Factors

The company expects its loan growth to boost the top line in the fourth quarter, continuing the previous trend.

The company’s frequent share buyback programs are expected to impact the bottom line positively by reducing the outstanding share count.

Nevertheless, Discover Financial’s extensive promotional activities are likely to drain its bottom line in the to-be-reported quarter.

In addition, rising level of debt is likely to result in an increase in interest expenses in the fourth quarter, limiting the margin.

Why a Likely Positive Surprise?

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

Zacks ESP: Discover Financial has an Earnings ESP of +0.72%. A stock’s positive ESP raises confidence about an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Discover Financial Services Price and EPS Surprise

Zacks Rank: Discover Financial carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP as stocks with a favorable Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have significantly higher chances of an earnings beat.

Conversely, we caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Other Stocks to Consider

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

American Financial Group Inc. (AFG - Free Report) has an Earnings ESP of +1.21% and a Zacks Rank of 2. The company is set to report fourth-quarter earnings on Jan 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nasdaq, Inc. (NDAQ - Free Report) has an Earnings ESP of +0.08% and a Zacks Rank #2. The company is also set to report fourth-quarter earnings on Jan 31.

Cincinnati Financial Corporation (CINF - Free Report) has an Earnings ESP of +2.92% and a Zacks Rank #3. The company is set to report fourth-quarter earnings on Feb 7.

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