Discover Financial's (DFS) Q3 Earnings In Line, Improve Y/Y

Discover Financial Services'DFS third-quarter 2018 adjusted earnings of $2.05 per share are in line with the Zacks Consensus Estimate. The bottom line also improved 29% year over year on higher revenues and solid loan growth.

Discover Financial Services Price and EPS Surprise

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

Operational Update

For the reported quarter, the company's revenues, net of interest expenses, increased 8% year over year to $2.7 billion, driven by higher net interest incomes and the company's other total income. Moreover, the top line beat the Zacks Consensus Estimate by 1.1%.

Total loans grew 8% year over year to $86.9 billion.

Interest expenses of $558 million surged 31% year over year.

Total other expenses increased 7.1% to $1015 million due to higher employee compensation and benefits plus other expenses.

Segment Update

Direct Banking Segment

This segment's pre-tax income increased 6.5% to $923 million owning to more net interest income. However, the same was largely offset by a rise in provision for loan losses and operating expenses.

Total loans increased 8% year over year to $86.9 billion. Credit card loans rose 9% to $69.3 billion.

Personal loans ascended 2%, private student loans rose 2% as well as climbed 10% excluding purchased student loans, all on a year-over-year basis.

Net interest income increased 8% year over year, driven by loan growth. Net interest margin was 10.28%, remaining flat with the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $44 million in the quarter under review, up 22.2% from the year-earlier period, mainly driven by higher revenues attributable to transaction volume growth.

Payment Services transaction dollar volume was $58.7 billion, up 14% from the prior-year-quarter.

PULSE transaction dollar volume expanded 14% year over year, driven by the impact of new issuers on the network as well as strong growth from existing issuers.

Diners Club volume grew 5% from the year-ago quarter, banking on a continued strength of newer franchise relationships.

Network Partners volume expanded 34%, backed by AribaPay.

Strong Financial Position

Discover Financial had total assets worth $105.8 billion as of Sep 30, 2018, up 8.4% year over year.

Total liabilities as of Sep 30, 2018 were $94.8 billion, up 9.7% year over year.

Total equity was $10.89 billion on Sep 30, 2018, slipping 1.5% 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 6 million shares of common stock for $460 million.

Shares of common stock outstanding dipped 1.7% from the previously reported quarter's tally.

Zacks Rank

Discover Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Other Releases From Finance Sector

Among other players from the finance sector having reported third-quarter earnings so far, the bottom line of The Progressive Corporation PGR and MGIC Investment Corporation MTG outpaced the respective Zacks Consensus Estimate, while RLI Corp.'s earnings RLI lagged the same.

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Discover Financial Services (DFS): 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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