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Is a Beat in Store for Discover Financial (DFS) Q3 Earnings?

Zacks Equity Research

Discover Financial Services DFS will release third-quarter 2019 results on Oct 22 after market close.

The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at $2.29, suggesting a rise of 11.7% from the year-ago reported figure.

In the last reported quarter, the company’s earnings of $2.32 per share beat the Zacks Consensus Estimate by 10%. Moreover, the bottom line improved 21.5% year over year on higher revenues.

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

Factors at Play

Higher card sales leading to a steady revenue stream might have favored the company’s third-quarter earnings.

Revenues are also expected to have improved on the back of an increase in net interest income and total other income of the company. The Zacks Consensus Estimate for revenues stands at $2.88 billion, indicating 5.8% growth from the prior-year reported number.

The company is likely to have witnessed a strong credit performance. The network transaction volume is expected to have contributed to the company’s performance as well.

Its Direct Banking Business, aided by loan growth and net interest margin expansion, is likely to have provided cushion to the company’s overall performance. Net interest income at the segment might have increased in the third quarter of 2019. The consensus mark for the same stands at $239 million, implying an increase of 7.9% from the year-earlier reported figure.

Discover Financial is likely to have invested in fueling its overall growth and capabilities. However, such investments and growth initiatives might have induced a rise in operating expenses of the company.

The company’s overdependence on debt is evident from its 2017 and 2018 debt-to-equity ratio of 242% and 244.6%, respectively. This might have continued to remain at elevated levels in the third quarter.

Key Developments in Q3

In September 2019, Discover Home Equity Loans achieved a breakthrough point by crossing the $1-billion mark in loan balance and doubling origination volume in each of the last couple of years. This landmark feat has made it the second biggest originator of closed-end second mortgages in the United States.

What Our Quantitative Model States

Our proven model predicts an earnings beat for Discover Financial this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: Discover Financial has an Earnings ESP of +0.31%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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, which increases the predictive power of ESP.

Other Stocks to Consider

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

Fiserv, Inc. FISV is set to report third-quarter earnings on Oct 30. The stock has a Zacks Rank of 2 and an Earnings ESP of +3.36%.

Alliance Data Systems Corporation ADS    is set to report third-quarter earnings on Oct 24. The stock is Zacks #3 Ranked and has an Earnings ESP of +1.34%.

MarketAxess Holdings Inc. MKTX is slated to announce third-quarter earnings on Oct 23. The stock has an Earnings ESP of +3.65% and a Zacks Rank #2.

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