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Discover Financial (DFS) Beats on Q3 Earnings & Revenues

Discover Financial Services ' DFS third-quarter 2017 earnings of $1.59 per share surpassed the Zacks Consensus Estimate by 4%. The bottom line also rose 2% year over year.

For the reported quarter, the company's revenue net of interest expenses increased 9.7% year over year to $2.5 billion. The top line also surpassed the Zacks Consensus Estimate by 35%.

Operational Update

Consumer deposits grew 10% from the year-ago quarter to $38.7 billion.

Interest expenses of $426 million jumped 18.7%, mainly due to change in funding mix and higher market rates.

Total other expenses increased 6% to $948 million due to higher employee compensation and benefits, Marketing and Business Development expenses and Information Processing & Communications fees.

Segment Update

Direct Banking Segment

This segment's pre-tax income declined 7% to $831 million. This was because higher provision for loan losses and operating expenses more than offset higher net interest income.

Total loans increased 9% year over year to $80.4 billion.

Credit card loans rose 9% to $63.5 billion.

Personal loans increased 18%, private student loans increased 2% and jumped 11% excluding purchased student loans, all on a year-over-year basis.

Net interest income increased 12% to $2 billion from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.28%, up 28 basis points.

Total other income decreased 2% to $475 million from the prior-year quarter, driven by higher rewards expense.

Provision for loan losses of $675 million increased 64.8% year over year due to higher net charge-offs and a larger reserve build.

Payment Services Segment

Payment Services pretax income was $36 million in the quarter, up 20% from the year-ago quarter, primarily driven by higher transaction processing revenues and interchange revenues.

Payment Services transaction dollar volume was $51.6 billion, up 16% from the prior year-quarter.

PULSE transaction dollar volume went up 17% year over year.

Diners Club International volume rose 9% from the last-year quarter, driven by continued strength of newer franchise relationships.

Network Partners volume increased 15%, driven by AribaPay.

Discover Financial Services Price, Consensus and EPS Surprise

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

Financial Position

Discover Financial had total assets worth $97.6 billion as of Sep 30, 2017, up 7.8% year over year.

Total liabilities as of Sep 30, 2017 were $86.4 billion, up 9.1% year over year.

Total equity was $11.2 billion on Sep 30, 2017, down 1.4% year over year.

Discover Financial's return on equity for the third quarter was 22%.

Share Repurchase Update

During the third quarter, the company repurchased approximately 9.2 million shares of common stock for $555 million.

Shares of common stock outstanding declined 2.4% from the prior quarter.

Zacks Rank and Performance of Other Peers

Discover Financial presently carries a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Among other players in the Finance sector that have reported their third-quarter earnings so far, American Express Company AXP , Alliance Data Systems Corporation. ADS and Navient Corporation NAVI beat their respective Zacks Consensus Estimate.

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Discover Financial Services (DFS): Free Stock Analysis Report

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Alliance Data Systems Corporation (ADS): 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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