Discover Financial (DFS) Q3 Earnings Surpass, Improve Y/Y

Discover Financial Services’ DFS third-quarter 2019 adjusted earnings of $2.36 beat the Zacks Consensus Estimate by 3.1%. Moreover, the bottom line improved 15.1% year over year on higher revenues and solid loan growth.

Its Direct Banking and Payments Services segments also witnessed growth in the third quarter.

Operational Update

In the reported quarter, the company’s revenues — net of interest expenses — increased 6.5% year over year to $2.9 billion, driven by higher net interest income and loan fee income. Moreover, the top line surpassed the Zacks Consensus Estimate by 0.7%.

Total loans grew 6% year over year to $92.5 billion.

Interest expenses of $638 million increased 14.3% year over year.

Total other expenses rose 9.1% to $1.11 billion due to higher employee compensation, marketing and business development and professional fees.

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services price-consensus-eps-surprise-chart | Discover Financial Services Quote

Segmental Update

Direct Banking Segment

This segment’s pre-tax income inched up 2.2% to $943 million owing to more net interest income. However, the same was largely offset by a rise in provision for loan losses and higher operating expenses.

Total loans climbed 6% year over year to $92.5 billion. Credit card loans augmented 7% to $74 billion.

Personal loans ascended 1% while private student loans rose 4%. The same also shot up 9% excluding purchased student loans, all on a year-over-year basis.

Net interest income increased 8% year over year, driven by loan growth and net interest margin expansion. Net interest margin was 10.43%, up 15 basis points from the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $51 million in the quarter under review, up 16% from the year-earlier period owing to higher revenues driven by transaction volume growth.

Payment Services transaction dollar volume was $62.6 billion, up 7% from the prior-year period.

PULSE transaction dollar volume expanded 5% year over year, driven by the impact of new issuers and acquiring relationships on the network and strong growth from existing issuers and acquirers.

Diners Club volume grew 0.2% from the year-earlier quarter.

Network Partners volume expanded 30%, backed by AribaPay.

Strong Financial Position

Discover Financial had total assets worth $110.8 billion as of Sep 30, 2019, up 4.7% year over year.

Total liabilities as of Sep 30, 2019 were $99 billion, up 4.5% year over year.

Total equity was $11.1 billion on Sep 30, 2019, up 6.4% year over year.

Discover Financial’s return on equity for the third quarter was 26%.

Share Repurchase Update

During the quarter under review, the company repurchased approximately 5.1 million shares of common stock for $419 million.

Shares of common stock outstanding dipped 1.4% from the previously reported quarter’s tally.

Zacks Rank

Discover Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases From Finance Sector

Global Payments Inc. GPN is slated to announce third-quarter earnings on Oct 31. The consensus estimate for earnings is pegged at $1.67, implying growth from $1.44 reported in the prior-year quarter. The stock carries a Zacks Rank of 3.

Fiserv, Inc. FISV is scheduled to release third-quarter earnings on Nov 6. The Zacks Consensus Estimate for the same stands at 98 cents, indicating growth of 30.7% from the year-ago reported figure. The stock is a Zacks #2 (Buy) Ranked player.

WEX Inc. WEX is set to report third-quarter earnings on Oct 30. The consensus mark for earnings is pinned at $2.59, suggesting 18.3% growth from the year-earlier reported figure. The company is a Zacks #3 Ranked.

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