What's in Store for Discover Financial's (DFS) Q3 Earnings?

Discover Financial Services DFS will release third-quarter 2020 results on Oct 21, after market close.

The company incurred second-quarter 2020 adjusted loss of $1.20 cents per share. The Zacks Consensus Estimate was of earnings of 5 cents per share. Moreover, the bottom line came against the year-ago quarter’s adjusted earnings of $2.32 per share. This underperformance was due to weak performances by both its Direct Banking Payment Services segments.

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 continued witnessing muted loan growth as well as sales volume in the to-be-reported quarter.

Spending in home improvement category is likely to have started improving while travel, gas and restaurants might have persistently suffered pressure.  

Per the last earnings call, management said that the company expects to witness some deterioration in consumer credit in the coming quarters.

The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at $1.52 per share, indicating a 35.6% plunge from the prior-year reported figure.

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 $26.4 billion, suggesting an 8.9% decline from the prior-year reported number.

The Zacks Consensus Estimate for loan fee income suggests a drop of 21% from the year-ago reported figure while that for credit card sales volume implies a decrease of 10.5% from the prior-year reported number.

The Direct Banking segment is likely to have taken a hit from lower net interest income. The Zacks Consensus Estimate for the same is pegged at $2.1 billion, suggesting a decrease of 10.6% from the year-earlier reported figure.

The Zacks Consensus Estimate for total network transaction volume hints at a 5% dip from the year-ago reported figure.

Nonetheless, the company is likely to have maintained its cost-reduction strategy in the third quarter. Marketing and business development costs are likely to have decreased amid slowdown in economy.

What the Quantitative Model States

Our proven model predicts 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Discover Financial has an Earnings ESP of +6.12%. This is because the Most Accurate Estimate is pegged at $1.61, higher than the Zacks Consensus Estimate of $1.52.  You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

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

Zacks Rank: Discover Financial carries a Zacks Rank #3, which increases the predictive power of ESP.

Other Stocks to Consider

Some other stocks worth considering from the finance sector with a perfect mix of elements to also surpass estimates in the upcoming quarterly releases are as follows:

Equitable Holdings, Inc. EQH is set to report third-quarter earnings on Nov 4. The stock currently has a Zacks Rank #2 and an Earnings ESP of +4.74%.

Capital One Financial Corporation COF has an Earnings ESP of +11.31% and is presently Zacks #3 Ranked. The company is scheduled to release third-quarter earnings on Oct 22.

Moodys Corporation MCO is slated to announce third-quarter earnings on Oct 29. The stock has an Earnings ESP of +1.93% and is a #2 Ranked player, presently.

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