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Is a Beat in Store for Discover Financial (DFS) Q2 Earnings?

Zacks Equity Research

Discover Financial Services DFS will release second-quarter 2019 results on Jul 23 after market close. In the last reported quarter, the company’s earnings of $2.15 per share beat the Zacks Consensus Estimate by 7.5%. Moreover, the bottom line improved 18.1% year over year on higher revenues and increased loans.

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

The company’s performance is likely to be boosted by higher card sales leading to solid revenues. The Zacks Consensus Estimate for the company’s second-quarter earnings is pegged at $2.12, up 11% from the year-ago reported figure.

Revenues are expected to be cushioned by improved card sales, better net interest income and other total income of the company. The Zacks Consensus Estimate for revenues stands at $2.79 billion, indicating 7.5% growth from the prior-year reported number.

Discover Financial put in consistent efforts via alliances to drive its card portfolio. The network transaction volume is likely to have contributed to the company’s performance as well.

Its Direct Banking Business, aided by loan growth and net interest margin expansion, is expected to bolster the company’s overall performance.

The company’s probable steady capital deployment during the to-be-reported quarter should further favor its bottom line.

Discover Financial continued with regular investments in fueling overall growth and adding capabilities. However, investments in technology and growth initiatives might induce a rise in overall expenses, thereby compressing margins.

The company’s overdependence on debt might persistently weigh down the margins. Moreover, the second quarter of 2019 is likely to have incurred elevated interest expenses.

What the Quantitative Model States

Our proven model conclusively shows that Discover Financial is likely to beat on earnings this to-be-reported quarter. This is because the stock needs to have the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Discover Financial has an Earnings ESP of +0.29%. 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. Along with a positive ESP in the combination, chances of an earnings beat are significantly higher for the stock this reporting cycle.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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:

Aflac Incorporated AFL is set to report second-quarter earnings on Jul 25. The stock has a Zacks Rank #2 and an Earnings ESP of +0.78%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arch Capital Group Ltd. ACGL is slated to announce second-quarter earnings on Jul 29. The stock has an Earnings ESP of +2.83% and is a Zacks #2 Ranked player.

AMERISAFE, Inc. AMSF has an Earnings ESP of +4.35% and a Zacks Rank of 3. The company is scheduled to release second-quarter earnings on Jul 31.

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Discover Financial Services (DFS) : Free Stock Analysis Report
 
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