Can Card Sales Drive Discover Financial's (DFS) Q3 Earnings?
Zacks Investment Research | Oct 20, 2017 08:53AM ET
Discover Financial Services (NYSE:DFS) will release third-quarter 2017 results on Oct 24, after market close.
The company is one of the major credit card issuers in the United States. It is creating an active card member base than solely relying on fund transfers at acquisitions, thus protecting the loan portfolio during times of lower balance transfers. Its Direct Banking business is a major revenue growth driver. Continuous growth in card sales and loans strengthen this segment. The company has been witnessing solid increase in card sales volume over past many years, benefitting its revenue base. The Zacks Consensus Estimates for total credit card volume and card sales are pegged at $35 billion and $32 billion, respectively, each reflecting year-over-year growth of 4%.
However, the company’s Payments Service segment has been a drag over the past few years. Three pillars of this segment, Discover Network, Diners’ Club and Pulse Network has been continuously underperforming over past many years. This segment is likely to affect Discover Financial’s results in the third quarter as well. The Zacks Consensus Estimate for its total transaction volume is pegged at $46.8 billion, reflecting a sequential decline of 6.6%.
The company has been taking steps to manage its debt level. The third-quarter margin is hence expected to be less drained by the cost of borrowings. The Zacks Consensus Estimate for the Risk-based Capital ratio is pegged at 0.14 compared with 15.20 in the last quarter.
Other Factors
Discover Financial’s solid loan growth is also expected to be another contributor to top-line appreciation.
The company’s frequently undertaken share repurchase programs, aimed at enhancing shareholders’ value, is expected to impact the bottom line positively by reducing the outstanding share count.
Nevertheless, Discover Financial’s extensively undertaken promotional activities are likely to cause an increase in total expenses, thus impacting the bottom line.
In addition, rising level of debt is likely to result in an increase in interest expenses in the third quarter, limiting the margin.
Earnings Whispers
Our proven model does not conclusively show that Discover Financial is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Original post
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