Discover Financial's (DFS) Q1 Earnings Beat, Improve Y/Y

Discover Financial Services DFS reported first-quarter 2021 adjusted earnings of $5.04 per share, beating the Zacks Consensus Estimate of $2.88 by a whopping 75%. Moreover, the bottom line rebounded from the year-ago quarter’s loss of 25 cents per share. The results were driven by a solid credit performance, impressive growth in sales and execution on operating and funding costs.

This upside can also be attributed to a solid performance by its Direct Banking business.

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

Operational Update

In the reported quarter, the company’s revenues — net of interest expenses — dipped 3.2% year over year to $2.8 billion.

However, the top line beat the Zacks Consensus Estimate by 1.3% on the back of its Direct Banking business. Total loans declined 7% year over year to $86.3 billion.

Interest expenses of $316 million decreased 45.9% year over year.

Total operating expenses decreased 6.7% to $1 billion, driven by lower market and business development costs, information processing, and communication and professional fees.

Segmental Update

Direct Banking Segment

This segment’s pre-tax income came in at $2 billion against the year-ago quarter’s loss of $161 million. This is attributable to a decline in provision for credit losses and reduced operating expenses. However, the same was partly offset by lower revenue net of interest expenses.

Total loans dropped 7% year over year to $86.3 billion. Credit card loans fell 9% to $67.3 billion.

Personal loans were down 9% while private student loans inched up 2%, both on a year-over-year basis. Net interest income slipped 3% year over year due to lower average receivables.

Net interest margin was 10.75%, up 54 basis points from the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $52 million in the quarter under review, down 37.3% from the year-earlier period due to the sale of an equity investment in the prior year.

Payment Services volume was up 19% from the prior-year period.

PULSE dollar volume expanded 23% year over year, aided by stimulus funds distributed in January and March 2021 as well as higher average spend per transaction, driven by the pandemic.

Diners Club volume contracted 24% from the year-earlier quarter due to the COVID-19 impact.

Network Partners volume rose 38%, backed by AribaPay.

Strong Financial Position

Discover Financial’s total assets were worth $113.8 billion as of Mar 31, 2021, up 1.1% year over year.

Total liabilities as of Mar 31, 2021 were $101.7 billion, down 1.2% year over year.

Total equity was $12.1 billion on Mar 31, 2021, up 25.8% year over year.

Share Repurchase Update

In the first quarter, the company bought back shares worth $119 million.
Shares of common stock outstanding dipped 0.2% from the previous quarter.

Zacks Rank

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

Upcoming Releases From Finance Sector

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:

Moodys Corporation MCO has a Zacks Rank of 3 and an Earnings ESP of +2.50% at present. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Owl Rock Capital Corporation ORCC has an Earnings ESP of +150.00% and a Zacks Rank #2 (Buy), currently.

Manulife Financial Corp MFC has an Earnings ESP of +4.65% and a Zacks Rank of 2, presently.

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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.

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