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Discover (DFS) Up 8.8% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Discover (DFS - Free Report) . Shares have added about 8.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Discover due for a pullback? 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 Q2 Earnings Beat, Revenues Miss
Discover Financial Services’ second-quarter 2018 adjusted earnings of $1.91 per share surpassed the Zacks Consensus Estimate by 1.06%. The bottom line also rose 36.4% year over year on higher revenues.
Operational Update
For the reported quarter, the company’s revenues net of interest expenses increased 7.6% year over year to $2.6 billion, driven by strong loan and Payment Services transaction dollar volume growth. The top line, however, missed the Zacks Consensus Estimate by 1.2%.
Consumer deposits grew 12% from the year-ago quarter to $42.3 billion.
Total loans grew 9% year over year to $84.8 billion.
Interest expenses of $507 million jumped 26.8% year over year.
Total other expenses increased 7.9% to $984 million due to higher employee compensation and benefits, marketing and business development expenses as well as professional fees.
Segment Update
Direct Banking Segment
This segment’s pre-tax income inched up 0.7% to $837 million as the increase in net interest income was largely offset by an increase in the provision for loan losses and higher operating expenses.
Total loans increased 9% year over year to $84.8 billion. Credit card loans rose 10% to $67.8 billion.
Personal loans increased 5%, private student loans increased 2% and climbed 10% excluding purchased student loans, all on a year-over-year basis.
Net interest income increased 10% year over year, driven by loan growth and a higher net interest margin. Net interest margin was 10.21%, up 10 basis points from the year-ago quarter.
Payment Services Segment
Payment Services pretax income was $40 million in the quarter, up 11.11% from the year-earlier quarter.
Payment Services transaction dollar volume was $57.3 billion, up 14% from the prior-year-quarter.
PULSE transaction dollar volume increased 14% year over year, driven by the impact of new issuers on the network as well as strong growth from existing issuers.
Diners Club volume rose 8% from the year-ago quarter, driven by a continued strength of newer franchise relationships.
Network Partners volume expanded 33%, backed by AribaPay.
Strong Financial Position
Discover Financial had total assets worth $102.75 billion as of Jun 30, 2018, up 9.6% year over year.
Total liabilities as of Jun 30, 2018 were $91.86 billion, up 11.3% year over year.
Total equity was $10.89 billion on Jun 30, 2018, down 3.3% year over year.
Discover Financial’s return on equity for the second quarter was 25%.
Share Repurchase Update
During the second quarter, the company repurchased approximately 7.6 million shares of common stock for $555 million.
During the quarter, the company announced that it will hike quarterly dividend to 40 cents per share from 35 cents and repurchase shares of up to $1.85 billion during the four quarters ending Jun 30, 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a flat trend in fresh estimates.
VGM Scores
Currently, Discover has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.
Outlook
Discover has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Discover (DFS) Up 8.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Discover (DFS - Free Report) . Shares have added about 8.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Discover due for a pullback? 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 Q2 Earnings Beat, Revenues Miss
Discover Financial Services’ second-quarter 2018 adjusted earnings of $1.91 per share surpassed the Zacks Consensus Estimate by 1.06%. The bottom line also rose 36.4% year over year on higher revenues.
Operational Update
For the reported quarter, the company’s revenues net of interest expenses increased 7.6% year over year to $2.6 billion, driven by strong loan and Payment Services transaction dollar volume growth. The top line, however, missed the Zacks Consensus Estimate by 1.2%.
Consumer deposits grew 12% from the year-ago quarter to $42.3 billion.
Total loans grew 9% year over year to $84.8 billion.
Interest expenses of $507 million jumped 26.8% year over year.
Total other expenses increased 7.9% to $984 million due to higher employee compensation and benefits, marketing and business development expenses as well as professional fees.
Segment Update
Direct Banking Segment
This segment’s pre-tax income inched up 0.7% to $837 million as the increase in net interest income was largely offset by an increase in the provision for loan losses and higher operating expenses.
Total loans increased 9% year over year to $84.8 billion. Credit card loans rose 10% to $67.8 billion.
Personal loans increased 5%, private student loans increased 2% and climbed 10% excluding purchased student loans, all on a year-over-year basis.
Net interest income increased 10% year over year, driven by loan growth and a higher net interest margin. Net interest margin was 10.21%, up 10 basis points from the year-ago quarter.
Payment Services Segment
Payment Services pretax income was $40 million in the quarter, up 11.11% from the year-earlier quarter.
Payment Services transaction dollar volume was $57.3 billion, up 14% from the prior-year-quarter.
PULSE transaction dollar volume increased 14% year over year, driven by the impact of new issuers on the network as well as strong growth from existing issuers.
Diners Club volume rose 8% from the year-ago quarter, driven by a continued strength of newer franchise relationships.
Network Partners volume expanded 33%, backed by AribaPay.
Strong Financial Position
Discover Financial had total assets worth $102.75 billion as of Jun 30, 2018, up 9.6% year over year.
Total liabilities as of Jun 30, 2018 were $91.86 billion, up 11.3% year over year.
Total equity was $10.89 billion on Jun 30, 2018, down 3.3% year over year.
Discover Financial’s return on equity for the second quarter was 25%.
Share Repurchase Update
During the second quarter, the company repurchased approximately 7.6 million shares of common stock for $555 million.
During the quarter, the company announced that it will hike quarterly dividend to 40 cents per share from 35 cents and repurchase shares of up to $1.85 billion during the four quarters ending Jun 30, 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a flat trend in fresh estimates.
VGM Scores
Currently, Discover has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.
Outlook
Discover has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.