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Discover (DFS) Up 1.5% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Discover (DFS - Free Report) . Shares have added about 1.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Discover due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Discover Financial reported second-quarter 2021 adjusted earnings of $5.55 per share, beating the Zacks Consensus Estimate of $3.68 by a whopping 50.8%. The bottom line rebounded from the year-ago quarter’s loss of $1.20 per share. Results were driven by marketing investments, growing sales trends and a solid credit performance.
This upside can also be attributed to strength in its Digital Banking and Payment Services businesses.
Operational Update
In the reported quarter, the company’s revenues — net of interest expenses — rose 34% year over year to $3.5 billion.
The top line beat the Zacks Consensus Estimate by 24.7% on the back of its Direct Banking business.
Interest expenses of $290 million decreased 39.8% year over year. Total operating expenses increased 13.5% to $1.2 billion due to higher employee compensation and benefits, marketing and business development, and other expense.
Segmental Update
Digital Banking Segment
This segment’s pre-tax income came in at $1.5 billion against the year-ago quarter’s loss of $484 million. This is attributable to a decline in provision for credit losses and higher revenue net of interest expenses. However, the same was partly offset by higher operating expenses.
Total loans dipped 1% year over year to $87.7 billion. Credit card loans fell 2% to $68.9 billion.
Personal loans were down 6% while private student loans inched 1%, both on a year-over-year basis. Net interest income increased 5% year over year owing to a favourable impact from lower market rates and lower interest charge-offs.
Net interest margin was 10.68%, up 87 basis points from the year-ago quarter’s level.
Payment Services Segment
Pre-tax income was $692 million in the quarter under review, up from the year-earlier period’s figure of $29 million.
Payment Services volume was 22% above the prior-year period’s number. PULSE dollar volume expanded 19% year over year, aided by growth in all debit products, led by an increased spend from the economic recovery. Diners Club volume expanded 41% from the year-earlier quarter’s tally following the COVID-19 impact.
Network Partners volume rose 30%, backed by AribaPay.
Strong Financial Position
Discover Financial’s total assets were worth $110.9 billion as of Jun 30, 2021, down 2.5% year over year.
Total liabilities as of Jun 30, 2021 were $97.8 billion, down 6.1% year over year.
Total equity was $13.1 billion on Jun 30, 2021, up 36.6% year over year.
Share Repurchase and Dividend Update
In the second quarter, the company bought back shares worth $553 million. Shares of common stock outstanding dipped 1.6% from the previous quarter’s reading.
Management declared a new $2.4-billion share buyback plan. It also hiked the divided by 14% to 50 cents. The latest share repurchase planspans three quarters through Mar 31, 2022.
The company’s board of directors approved a quarterly cash dividend of 50 cents per share payable Sep 2, 2021 to its shareholders of record on Aug 19, 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 8.38% due to these changes.
VGM Scores
At this time, Discover has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Discover has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Discover (DFS) Up 1.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Discover (DFS - Free Report) . Shares have added about 1.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Discover due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Discover Financial's Q2 Earnings Beat, Improve Y/Y
Discover Financial reported second-quarter 2021 adjusted earnings of $5.55 per share, beating the Zacks Consensus Estimate of $3.68 by a whopping 50.8%. The bottom line rebounded from the year-ago quarter’s loss of $1.20 per share. Results were driven by marketing investments, growing sales trends and a solid credit performance.
This upside can also be attributed to strength in its Digital Banking and Payment Services businesses.
Operational Update
In the reported quarter, the company’s revenues — net of interest expenses — rose 34% year over year to $3.5 billion.
The top line beat the Zacks Consensus Estimate by 24.7% on the back of its Direct Banking business.
Interest expenses of $290 million decreased 39.8% year over year.
Total operating expenses increased 13.5% to $1.2 billion due to higher employee compensation and benefits, marketing and business development, and other expense.
Segmental Update
Digital Banking Segment
This segment’s pre-tax income came in at $1.5 billion against the year-ago quarter’s loss of $484 million. This is attributable to a decline in provision for credit losses and higher revenue net of interest expenses. However, the same was partly offset by higher operating expenses.
Total loans dipped 1% year over year to $87.7 billion. Credit card loans fell 2% to $68.9 billion.
Personal loans were down 6% while private student loans inched 1%, both on a year-over-year basis. Net interest income increased 5% year over year owing to a favourable impact from lower market rates and lower interest charge-offs.
Net interest margin was 10.68%, up 87 basis points from the year-ago quarter’s level.
Payment Services Segment
Pre-tax income was $692 million in the quarter under review, up from the year-earlier period’s figure of $29 million.
Payment Services volume was 22% above the prior-year period’s number.
PULSE dollar volume expanded 19% year over year, aided by growth in all debit products, led by an increased spend from the economic recovery.
Diners Club volume expanded 41% from the year-earlier quarter’s tally following the COVID-19 impact.
Network Partners volume rose 30%, backed by AribaPay.
Strong Financial Position
Discover Financial’s total assets were worth $110.9 billion as of Jun 30, 2021, down 2.5% year over year.
Total liabilities as of Jun 30, 2021 were $97.8 billion, down 6.1% year over year.
Total equity was $13.1 billion on Jun 30, 2021, up 36.6% year over year.
Share Repurchase and Dividend Update
In the second quarter, the company bought back shares worth $553 million. Shares of common stock outstanding dipped 1.6% from the previous quarter’s reading.
Management declared a new $2.4-billion share buyback plan. It also hiked the divided by 14% to 50 cents. The latest share repurchase planspans three quarters through Mar 31, 2022.
The company’s board of directors approved a quarterly cash dividend of 50 cents per share payable Sep 2, 2021 to its shareholders of record on Aug 19, 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 8.38% due to these changes.
VGM Scores
At this time, Discover has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Discover has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.