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Discover Financial's (DFS) Q4 Earnings: What's in the Cards?

Zacks Equity Research

Discover Financial Services DFS will release fourth-quarter 2018 results on Jan 24 after market close. In the last reported quarter, the company’s earnings of $2.05 were in line with the Zacks Consensus Estimate.

The Zacks Consensus Estimate for the company’s fourth-quarter earnings is pegged at $2.09, up 34.8% year over year. This upside is will most likely be boosted by card sales, which in turn, should aid revenue growth. Solid loan growth is also likely to have contributed to its numbers.

The Zacks Consensus Estimate for revenues is pegged at $28.1 billion, reflecting year-over-year growth of 7.6%.

Other Factors

The company is assumed to have made regular investments in driving its card portfolio. Moreover, the network transaction volume for proprietary discover network stands at 39.2 billion, up 8% year over year.

The company might have been consistent with share buybacks, which is a boon to its overall growth.

In the fourth quarter of 2018, the company is expected to have witnessed lower acquisition costs per account on a year-to-date basis. The continual reduction of year-over-year increases in card charge-offs might have also sustained in the quarter under review.

Further, the company’s cost-control measures must have  improved expenses, thereby aiding margins.

However, the company’s Personal Loans would suffer due to severe competition in the industry.

What the Quantitative Model States

Our proven model does not conclusively show that Discover Financial Services 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. But that is not the case here as you can see below.

Earnings ESP: Discover Financial Services has an Earnings ESP of +0.93%. This is because the Most Accurate Estimate is pegged at $2.11, higher than the Zacks Consensus Estimate of $2.09. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services Price, Consensus and EPS Surprise | Discover Financial Services Quote

Zacks Rank: Discover Financial Services carries a Zacks Rank #4 (Sell), which decreases the predictive power of ESP. Therefore, this combination leaves surprise prediction inconclusive. We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

BofI Holding, Inc. AX is set to report fourth-quarter earnings on Jan 29. The stock has a Zacks Rank #3 and an Earnings ESP of +5.22%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cboe Global Markets, Inc. CBOE has an Earnings ESP of +1.93%. This Zacks Rank #2 company is scheduled to release fourth-quarter earnings on Feb 2.

Brown & Brown, Inc. BRO is slated to announce fourth-quarter earnings on Jan 28. The stock has an Earnings ESP of +5.38% and a Zacks Rank of 1.

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