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Can Card Sales Boost Discover Financials' (DFS) Q2 Earnings?

Discover Financial ServicesDFS will release second-quarter 2018 results on Jul 26 after market close.

Discover Financial Services has been witnessing consistent growth in card sales over the last several years, adding to its revenue base in the process. The second-quarter earnings have likely benefited from a strong economy and favorable tax incidences. The Zacks Consensus Estimate for card sales is pegged at $33.8 billion, reflecting year-over-year growth of 5.2%.

The company is likely to gain traction from a host of solid measures undertaken for the recovery of its Payment Service segment. The segment's decent performance in the past quarters is owing to these strategic moves. The Zacks Consensus Estimate for the segment's total transaction volume stands at $53 billion, translating into a 5.9% year-over-year rise.

Other Factors

A healthy U.S. economy might have aided the company's personal and student loan, which should in turn favor its top line. The rising rate environment must have driven its interest income.

Share buybacks have likely added an upside to the company, reducing the remaining share count.

Given the company's efficient operating model, the magnitude of the expenses is likely to remain lower than revenue growth, which should aid margins.

Increasing debt, which will lead to higher interest expense is likely to hurt the company's bottom-line in the second quarter.

What the Quantitative Model States

Our proven model does not conclusively show that Discover Financial Services is likely to beat on earnings this to-be-reported quarter. This is because the stock needs to have the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you can see below.

Earnings ESP: Discover Financial Services has an Earnings ESP of -0.27%. This is because the Most Accurate Estimate is pegged at $1.88, lower than the Zacks Consensus Estimate of $1.89. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter .

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services Price, Consensus and EPS Surprise | Discover Financial Services Quote

Zacks Rank: Discover Financial Services carries a Zacks Rank #3, which increases the predictive power of ESP. However, a stock needs to have a positive ESP to be confident about a likely earnings surprise. Therefore, this combination leaves surprise prediction inconclusive.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the Consumer Loans industry with the perfect combination of elements to surpass estimates in the next releases are as follows:

SLM Corporation SLM has an Earnings ESP of +2.17%. This #3 Ranked company is set to report second-quarter earnings on Jul 24. You can see the complete list of today's Zacks #1 Rank stocks here .

Aon plc AON is set to report second-quarter 2018 earnings on Jul 27. The stock has an Earnings ESP of +0.23% and a Zacks Rank of 3.

Navient Corporation NAVI is set to report second-quarter earnings on Jul 24. This #2 Ranked stock has an Earnings ESP of +2.62%.

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Discover Financial Services (DFS): Free Stock Analysis Report

SLM Corporation (SLM): Free Stock Analysis Report

Navient Corporation (NAVI): Free Stock Analysis Report

Aon plc (AON): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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