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Discover Financial (DFS) to Post Q1 Earnings: What's in Store?

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Discover Financial Services (DFS - Free Report) will release first-quarter 2020 results on Apr 22, after market close.

The company’s fourth-quarter 2019 earnings benefited from higher revenues, solid loan growth and its strong Payments Services segments. Adjusted earnings of $2.25 beat the Zacks Consensus Estimate by 0.9% and also improved 10.8% year over year.

The company has been consistently delivering a steady performance over the last several quarters, riding on growth in card sales, which in turn, contributed to its revenue base.

Let’s see, how things are shaping up prior to this announcement.

Given that the coronavirus outbreak had an impact on the payment services industry, the credit card issuer is likely to have suffered from the COVID-19 effect.

Investments in technology and growth initiatives might have induced an escalation in overall expenses, thereby compressing margins. The Zacks Consensus Estimate for the company’s first-quarter earnings is pegged at $1.88, indicating a decrease of 12.6% from the prior-year reported figure.

Nevertheless, revenues of the company are likely to have witnessed a hike on the back of higher card sales and better net interest income.

The Zacks Consensus Estimate for the top line stands at $28.6 billion, suggesting 3.8% improvement from the prior-year reported number.

Notably, the consensus mark for net interest income implies an increase of 4.2% from the year-earlier reported figure.

Its Direct Banking Business, driven by loan growth and net interest margin expansion, is expected to have uplifted the company’s overall performance in the to-be-reported quarter.

The company might have been consistent with share buybacks to further favor its bottom-line result.

What the Quantitative Model States

Our proven model does not conclusively predict an earnings beat for Discover Financial this reporting cycle. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here as you can see below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Discover Financial has an Earnings ESP of -7.21%. This is because the Most Accurate Estimate is pegged at $1.75, lower than the Zacks Consensus Estimate of $1.88.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Discover Financial carries a Zacks Rank #4 (Sell), which decreases the predictive power of ESP.

Stocks to Consider

Some stocks worth considering from the finance sector with a perfect mix of elements to surpass estimates in the upcoming quarterly releases are as follows:

Aflac Incorporated (AFL - Free Report) is slated to announce first-quarter earnings on Apr 29. The stock has an Earnings ESP of +1.31% and a Zacks Rank #3.

Nasdaq, Inc. (NDAQ - Free Report) is set to report first-quarter earnings on Apr 22. The stock has a Zacks Rank of 3 and an Earnings ESP of +1.15 %.

Aon plc (AON - Free Report) has an Earnings ESP of +0.20% and is Zacks #3 Ranked. The company is scheduled to release first-quarter earnings on May 1.

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