Can Card Sales Aid Discover Financial's (DFS) Q4 Earnings?

Discover Financial Services DFS will release fourth-quarter 2019 results on Jan 24 after market close.

The company’s third-quarter earnings benefited from high revenues, solid loan growth, and its strong Direct Baking and Payments Services segments. Adjusted earnings of $2.36 beat the Zacks Consensus Estimate by 3.1% and also improved 15.1% year over year in the third-quarter.

The company has been consistently delivering a steady performance over the past several quarters, riding on growth in card sales, which in turn, contributed to its revenue base.

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

The Zacks Consensus Estimate for the company’s fourth-quarter earnings is pegged at $2.23, indicating an increase of 9.3% from the prior-year reported figure. This upside is expected to have been led by card sales, which in turn, might have aided revenue growth.

Discover Financial has most likely continued to enhance its portfolio and added to its capabilities in the fourth quarter through strategic alliances, which in turn, might have provide sufficient support to its top line.

In the quarter to be reported, the company is likely to have constantly witnessed favorable results on the back of its healthy mix of sales volume from both new and current customers.

The Zacks Consensus Estimate for revenues stands at $29.5 billion, suggesting 4.9% improvement from the prior-year reported figure. The metric is expected to have climbed on higher card sales, better net interest income and  higher other total income of the company.

Its Direct Banking Business, driven by loan growth and net interest margin expansion, is expected to have uplifted the company’s overall performance in the to-be-reported quarter. The Zacks Consensus Estimate for net interest income from the segment implies an upside of 6.3% from the year-earlier reported number.

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

However, investments in technology and growth initiatives might have induced an escalation in overall expenses, thereby compressing margins.

What the Quantitative Model States

Our proven model does not conclusively predict an earnings beat for Discover Financial this reporting cycle. This is because the stock needs to have the right combination of a positive Earnings ESP and a 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 has an Earnings ESP of -2.37%. This is because the Most Accurate Estimate is pegged at $2.18, lower than the Zacks Consensus Estimate of $2.23.  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 #4 (Sell), which decreases the predictive power of ESP. Therefore, this combination makes surprise prediction difficult.

Stocks to Consider

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:

Global Payments Inc. GPN is slated to announce fourth-quarter earnings on Feb 12. The stock has an Earnings ESP of +3.14% and a Zacks Rank of 2.

Fidelity National Information Services, Inc. FIS is set to report fourth-quarter earnings on Feb 13. The stock has a Zacks Rank #2 and an Earnings ESP of +0.45 %. You can see the complete list of today’s Zacks #1 Rank stocks here.

Square, Inc. SQ has an Earnings ESP of +6.14% and a Zacks Rank #3. The company is scheduled to release fourth-quarter earnings on Feb 26.    

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