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Discover Financial Plunges 41.5% YTD: Will It Bounce Back?
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Discover Financial Services (DFS - Free Report) stock has declined so far this year due to the widespread volatility induced by COVID-19 as well as weak operating results.
Shares of this presently Zacks Rank #3 (Hold) company have shed 41.5% of value year to date, wider than its industry's decline of 33.1%.
Due to the impact of the pandemic, the company missed on first-quarter earnings. It incurred a loss of 25 cents per share. The Zacks Consensus Estimate was for earnings of $1.36 per share. Moreover, the bottom line came in against the year-ago quarter’s adjusted earnings of $2.15 per share.
Discover Financial has been witnessing pressure on its sales volumes since April. Increased spending on groceries was offset by a 60% decline in petroleum expenses. The company also saw softness in sales volume in travel category and retail and this trend is likely to continue until the pandemic persists. The present uncertainty related to the COVID-19 outbreak poses a challenge to the company.
In fact, the company even scrapped its 2020 outlook due to the current market volatility.
Discover Financial has been incurring considerable expenses over the past many years to compete with other credit card issuers, attract and retain customers and also to expand the card usage. In the first quarter of 2020, expenses rose 13.2% year over year due to higher compensation expense, steep marketing cost and investments in technology. The company’s planned marketing, technology and infrastructure investments and high legal, regulatory and compliance costs are also expected to flare up operating expenses going forward, which may limit its bottom-line growth.
The company’s provision for loan losses has been climbing over the last few quarters due to elevated net charge-offs, rise in reserve build, seasoning of newer vintages and constant supply-driven normalization in the consumer credit line. In the first quarter, provision for credit losses surged 123.3% year over year, reflecting bearish economic outlook. This continues to be a concern for the company.
The stock has witnessed its 2020 earnings estimates move 1.2% south over the past 30 days.
Will the Stock Rebound?
Nevertheless, we are hopeful that the company will gain from its solid balance sheet position, business mix and improving revenues.
The company took certain cost-controlling initiatives in response to the current uncertain economic environment, which is likely to aid its margins.
Discover Financial’s return-on-equity (ROE) reflects its growth potential. The company’s trailing 12-month ROE of 20.4% not only improved over the years but also compares favorably with the industry average of 8.5%.
Also, it recently announced results for the Federal Reserve’s 2020 supervisory stress testing and capital plan review exercise. The company’s preliminary stress capital buffer (SCB) is set at 3.5%. It managed to maintain a healthy capital position despite the current scenario of instability. Pending certain approvals, Discover Financial has plans to continue with its dividend payouts via a clearance of 44 cents per share for the third quarter of 2020.
Against all odds, it is worth noting that the company’s solid fundamentals will help the stock turn around once the overall economic condition betters.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
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Discover Financial Plunges 41.5% YTD: Will It Bounce Back?
Discover Financial Services (DFS - Free Report) stock has declined so far this year due to the widespread volatility induced by COVID-19 as well as weak operating results.
Shares of this presently Zacks Rank #3 (Hold) company have shed 41.5% of value year to date, wider than its industry's decline of 33.1%.
Other companies in the same space, such as Ally Financial Inc. (ALLY - Free Report) , Global Payments Inc. (GPN - Free Report) and Synchrony Financial (SYF - Free Report) have also lost 35.2%, 6% and 38.2%, respectively, in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Due to the impact of the pandemic, the company missed on first-quarter earnings. It incurred a loss of 25 cents per share. The Zacks Consensus Estimate was for earnings of $1.36 per share. Moreover, the bottom line came in against the year-ago quarter’s adjusted earnings of $2.15 per share.
Discover Financial has been witnessing pressure on its sales volumes since April. Increased spending on groceries was offset by a 60% decline in petroleum expenses. The company also saw softness in sales volume in travel category and retail and this trend is likely to continue until the pandemic persists. The present uncertainty related to the COVID-19 outbreak poses a challenge to the company.
In fact, the company even scrapped its 2020 outlook due to the current market volatility.
Discover Financial has been incurring considerable expenses over the past many years to compete with other credit card issuers, attract and retain customers and also to expand the card usage. In the first quarter of 2020, expenses rose 13.2% year over year due to higher compensation expense, steep marketing cost and investments in technology. The company’s planned marketing, technology and infrastructure investments and high legal, regulatory and compliance costs are also expected to flare up operating expenses going forward, which may limit its bottom-line growth.
The company’s provision for loan losses has been climbing over the last few quarters due to elevated net charge-offs, rise in reserve build, seasoning of newer vintages and constant supply-driven normalization in the consumer credit line. In the first quarter, provision for credit losses surged 123.3% year over year, reflecting bearish economic outlook. This continues to be a concern for the company.
The stock has witnessed its 2020 earnings estimates move 1.2% south over the past 30 days.
Will the Stock Rebound?
Nevertheless, we are hopeful that the company will gain from its solid balance sheet position, business mix and improving revenues.
The company took certain cost-controlling initiatives in response to the current uncertain economic environment, which is likely to aid its margins.
Discover Financial’s return-on-equity (ROE) reflects its growth potential. The company’s trailing 12-month ROE of 20.4% not only improved over the years but also compares favorably with the industry average of 8.5%.
Also, it recently announced results for the Federal Reserve’s 2020 supervisory stress testing and capital plan review exercise. The company’s preliminary stress capital buffer (SCB) is set at 3.5%. It managed to maintain a healthy capital position despite the current scenario of instability. Pending certain approvals, Discover Financial has plans to continue with its dividend payouts via a clearance of 44 cents per share for the third quarter of 2020.
Against all odds, it is worth noting that the company’s solid fundamentals will help the stock turn around once the overall economic condition betters.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
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