What's in Store for Discover Financial's (DFS) Q2 Earnings?

Discover Financial Services DFS will release second-quarter 2020 results on Jul 22, after market close.

The company incurred first-quarter 2020 adjusted loss of 25 cents per share. The Zacks Consensus Estimate was of adjusted earnings of $1.36 per share. Moreover, the bottom line came against the year-ago quarter’s adjusted earnings of $2.15 per share. This underperformance was due to the COVID-19 outbreak.

Although the company has been consistently delivering a steady performance, riding on growth in card sales, the coronavirus pandemic offset the same.

Let’s see, how things are shaping up prior to this announcement.

Given that the coronavirus outbreak had an impact on the payment services industry, the credit card issuer is likely to have taken a hit from the COVID-19 impact, which in turn, might have dented sales volume and card loan growth. The company is likely to have witnessed muted spend by customers in petroleum, travel, retails, etc.

The Zacks Consensus Estimate for the company’s second-quarter earnings is pegged at 5 cents per share, indicating a 97.8% plunge from the prior-year reported figure.

Per the company’s lastearnings call management said that the Fed rate cuts in March will impact net interest margin from the second quarter.

In the to-be-reported quarter, provision for credit losses is expected to have increased due to the current tepid economic outlook.

Revenues of the company are likely to have been hurt by lower card sales. The Zacks Consensus Estimate for the top line stands at $26.3 billion, suggesting a 7.7% decline from the prior-year reported number.

Nonetheless, the company is likely to have maintained its cost-reduction strategy in the second quarter. It had intensions to trim around $400 million over the second, third and fourth quarters of 2020 through curbed acquisition expenses, decline in spend on brand awareness as well as in consideration activities, vendor and technology costs.

What the Quantitative Model States

Our proven model does not conclusively predict an earnings beat for Discover Financial this reporting cycle. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here as you can see below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Discover Financial has an Earnings ESP of -632.1%. This is because the Most Accurate Estimate is pegged at -29 cents against the Zacks Consensus Estimate of 5 cents per share.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Discover Financial Services Price and EPS Surprise

Discover Financial Services Price and EPS Surprise

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

Zacks Rank: Discover Financial carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, along with its negative earnings ESP, surprise prediction is left inconclusive.

Stocks to Consider

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:

Cboe Global Markets, Inc. CBOE is slated to announce second-quarter earnings on Jul 31. The stock has an Earnings ESP of +0.48% and a Zacks Rank of 3, currently.

Moodys Corporation MCO is set to report second-quarter earnings on Jul 29. The stock has an Earnings ESP of +7.17% and is presently Zacks #3 Ranked.

Manulife Financial Corp MFC has a Zacks Rank #2 and an Earnings ESP of +2.96% at present. It will report second-quarter earnings on Aug 5.

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Moodys Corporation (MCO): Free Stock Analysis Report
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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.

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