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Is a Beat in Store for Discover Financial (DFS) Q1 Earnings?

Zacks Equity Research

Discover Financial Services DFS will release first-quarter 2019 results on Apr 25 after market close. In the last reported quarter, the company’s earnings of $2.03 per share missed the Zacks Consensus Estimate by 3%. However, the bottom line improved 31% year over year on higher revenues and solid loan growth.

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

The company’s first-quarter earnings will most likely be boosted by card sales, which in turn, should aid revenue growth. The Zacks Consensus Estimate for the bottom line is pegged at $2, up 9.9% from the year-ago reported figure.

Revenues are likely to be driven by higher card sales, better net interest income and other total income of the company. The consensus estimate for the metric in the first quarter stands at $27.5 billion, indicating growth of 6.7% from the prior-year reported figure.

Discover Financial is assumed to have made regular investments in driving its card portfolio. The network transaction volume is likely to have contributed to the company’s performance as well.

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

The company might have been consistent with share buybacks, which should further favor its bottom line.

The company has continued with its 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 excessive dependence on debt for funding has possibly heaped up high debt.

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 +0.67%. This is because the Most Accurate Estimate is pegged at $2.01, higher than the Zacks Consensus Estimate of $2. 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 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 an apt mix of elements to also surpass estimates in the upcoming quarterly releases are as follows:

Santander Consumer USA Holdings Inc. SC is set to report first-quarter earnings on Apr 30. The stock has a Zacks Rank of 3 and an Earnings ESP of +9.09%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Credit Acceptance Corporation CACC has an Earnings ESP of +0.08% and a Zacks Rank #2. The company is scheduled to release first-quarter earnings on May 2.

PRA Group, Inc. PRAA is slated to announce first-quarter earnings on May 9. The stock has an Earnings ESP of +0.59% and is a Zacks #3 Ranked player.

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Santander Consumer USA Holdings Inc. (SC) : Free Stock Analysis Report
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