The Zacks Analyst Blog Highlights: Discover Financial Services, Credit Acceptance, Santander Consumer USA Holdings, World Acceptance and Tesla Motors

Zacks Equity Research

For Immediate Release
Chicago, IL – July 21, 2014 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Discover Financial Services (DFS-Free Report), Credit Acceptance Corp. (CACC-Free Report), Santander Consumer USA Holdings Inc. (SC-Free Report), World Acceptance Corp. (WRLD-Free Report) and Tesla Motors, Inc. (TSLA-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday’s Analyst Blog:

Will Discover (DFS) Beat Earnings Estimates Again?
We expect direct banking and payment services company, Discover Financial Services (DFS-Free Report) to beat expectations when it reports second-quarter 2014 earnings on Jul 22, 2014.

Why a Likely Positive Surprise?

Our proven model shows that Discover Financial is likely to beat earnings because it has the right combination of two key components.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.77%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: Discover Financial carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of Discover Financial’s Zacks Rank #2 (Buy) and +0.77% ESP makes us confident of an earnings beat in the coming week.

What's Driving the Better-Than-Expected Earnings?

An improvement in consumer spending, wallet share and credit quality trends are expected to lead to a positive earnings surprise in the quarter. Additionally, the introduction of new interest fixed and variable interest rates on student loan applications in the past quarter is expected to draw a greater number of students, thereby increasing Discover Financial’s student loan originations.

Moreover, the merchant acquiring agreement in association with Bangkok Bank should contribute positively to earnings. This is because the deal enables Bangkok Bank’s merchants to accept Diners Club International, Discover, BC Global, DinaCard and RuPay cards – all coming under the Discover Global Network    

The positive trend is seen in the trailing four-quarter average surprise of 4.46%, which was greatly aided by the 4.80% surprise in the last reported quarter. This was possible because Discover Financial was successful in increasing student loan originations and expanding its international foothold.

Other Stocks to Consider

Discover Financial is not the only stock looking up this earnings season. We also see likely earnings beats coming from these three companies in the same sector:

Credit Acceptance Corp. (CACC-Free Report) has Earnings ESP of +2.39% and a Zacks Rank #2.

Santander Consumer USA Holdings Inc. (SC-Free Report) has Earnings ESP of +3.23% and a Zacks Rank #3 (Hold).

World Acceptance Corp. (WRLD-Free Report) has Earnings ESP of +3.64% and a Zacks Rank #3.

Tesla’s Model S to Carry UK Government Officials?

Tesla Motors, Inc.’s (TSLA-Free Report) Model S is one of the cars being considered under a U.K. government program to buy ultra-low emission vehicles for transporting officials. The Government Car Service, which provides the vehicles required by government officials, will buy at least 150 cars under the program, with total expenditure of up to 5 million pounds ($8.6 million). Among the vehicles being considered under the program, Model S has the highest range, which increases its chances of being selected.

The use of electric cars by the government will automatically lead to development of charging infrastructure in the U.K. This in turn, should increase the popularity of electric cars. Moreover, the U.K. government offers incentives on purchase of electric cars.

All these factors should help increase the sales of Tesla’s Model S and the upcoming Model X in the UK. The company’s operations in Europe will expand further with the opening of 30 stores and service centers in the next few months and expansion of the Supercharger network. Tesla started deliveries of the right-hand version of Model S in the U.K. in June.

In order to boost sales, the electric carmaker is actively undertaking international expansion, particularly in Europe and the world’s largest automobile market, China. Tesla expects sales in Europe and Asia to be double the sales in North America by the end of 2014.

Recently, the Chinese government also made it mandatory for 30% of the government vehicle purchases to be electric vehicles (EV). Moreover, the government announced a waiver of 10% purchase tax on domestic and imported electric, plug-in hybrid and fuel-cell vehicles in the nation from Sep 2014 to Dec 2017. These moves should bolster Tesla’s sales in the nation.

Tesla currently carries a Zacks Rank #3 (Hold).

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