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Discover Financial (DFS) Q4 Earnings Surpass, Improve Y/Y

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Discover Financial Services DFS reported fourth-quarter 2020 adjusted earnings of $2.59 per share, beating the Zacks Consensus Estimate of $2.37 by 9.3%. Moreover, the bottom line improved 15% year over year owing to a solid performance by its Direct Banking business. The company witnessed strong growth in its digital banking model.

Operational Update

In the reported quarter, the company’s revenues — net of interest expenses — dropped 4% year over year to $2.8 billion due to lower other income. However, the top line beat the Zacks Consensus Estimate by 0.1%.
Total loans declined 6% year over year to $90.4 billion.

Interest expenses of $383 million decreased 37.7% year over year.

Total operating expenses increased 8% to $1.3 billion due to higher one-time expense items and rise in compensation. However, the same was partly offset by decreased marketing and professional fees.

Discover Financial Services Price, Consensus and EPS Surprise

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

Segmental Update

Direct Banking Segment

This segment’s pre-tax income came in at $991 million, up 12.2% year over year owing to a decrease in the provision for credit losses. This was partly offset by lower revenue, net of interest expense as well as increased operating costs.

Total loans dipped 6% year over year to $90.4 billion. Credit card loans fell 7% to $71.5 billion.

Personal loans were down 7% while private student loans inched up 3%, both on a year-over-year basis. Net interest income slipped 2% year over year due to lower average receivables and an unfavorable net impact from lower market rates.

Net interest margin was 10.63%, up 34 basis points from the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $24 million in the quarter under review, down 41.5% from the year-earlier period due to lower Diners Club and Network Partners revenues.

Payment Services volume was up 6% from the prior-year period.

PULSE dollar volume expanded 10% year over year, fuelled by higher average spend per transaction related to the pandemic.

Diners Club volume contracted 28% from the year-earlier quarter due to the COVID-19 impact.

Network Partners volume expanded 23%, backed by AribaPay.

Strong Financial Position

Discover Financial’s total assets were worth $112.9 billion as of Dec 31, 2020, down 1% year over year.

Total liabilities as of Dec 31, 2020 were $114 billion, down 0.1% year over year.

Total equity was $10.8 billion on Dec 31, 2020, down 8.2% year over year.

Share Repurchase Update

The board of directors recently approved a new $1.1-billion share repurchase program, which can be terminated at any time. The new plan expires Dec 31, 2021.

Zacks Rank

Discover Financial sports a Zacks Rank #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Upcoming Releases From Finance Sector

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

Athene Holding Ltd. ATH has an Earnings ESP of +11.57% and a Zacks Rank of 3, currently.

Moodys Corporation MCO has a Zacks Rank #3 (Hold) and an Earnings ESP of +3.78% at present.

Synchrony Financial SYF has an Earnings ESP of +1.24% and a Zacks Rank #2 (Buy), presently.

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