Discover Financial Services’ (NYSE:DFS) first-quarter 2017 earnings of $1.43 per share beat the Zacks Consensus Estimate of $1.42 by a penny. The bottom line also improved 6% year over year.
For the reported quarter, the company’s net revenue grew 5.2% year over year to $2.3 billion. The top line also surpassed the Zacks Consensus Estimate by 29%.
Operational Update
For the reported quarter, total loans grew 8% from the prior-year quarter to $75.9 billion.
Credit card loans jumped 7% to $59.8 billion and Discover card sales volume increased 6% from the prior year.
Consumer deposits grew 13% from the year-ago quarter to $37.1 billion.
Payment Services transaction dollar volume was $47.1 billion, up 5% year over year.
Net interest income grew almost 8.1% year over year to $1.9 billion. The upside may be attributed to loan growth and higher net interest margin.
Interest expenses of $386 million grew 15%, mainly due to change in funding mix and higher market rates.
Total other expense decreased 4% to $897 million. This because the decline in marketing and business development, information processing & communications, professional fees, premises and equipment expenses, and other expenses outpaced the rise employee compensation and benefits.
Segment Update
Direct Banking Segment
This segment’s pre-tax income declined 7% to $824 million. This was because higher provision for loan losses and lower other income more than offset the increase in net interest income.
Total loans increased 8% year over year to $75.8 billion. Personal loans grew 20%, credit card loans rose 7%, and private student loans inched up 3%. Excluding purchased student loans, however, private student loans grew 12% from the prior-year quarter.
Other income decreased 8% from the prior year due to higher promotional rewards.
Net interest income increased 8% from the prior year on loan growth and a higher net interest margin. Net interest margin was 10.07%, up 13 basis points from the prior year.
Provision for loan losses of $594 million increased 40.4% from the prior year, primarily because of higher net charge-offs.
Payment Services Segment
Pre-tax income at Discover Financial’s Payment Services segment increased 37% to $44 million. The upside was primarily driven by a reserve release related to a Diners Club International licensee.
Payment Services transaction dollar volume was $47.1 billion, up 5% from the prior year. PULSE transaction dollar volume was up 4% year over year. Diners Club International volume increased 10% from the prior year on growth across all regions.
Discover Financial Services Price, Consensus and EPS Surprise
Financial Position
Discover Financial had total assets worth $94.8 billion as of Mar 31, 2017, up 2.7% over year-end 2016.
Total liabilities as of Mar 31, 2017 were $83.5 billion, up 3.1% over year-end 2016.
Total equity was $11.26 billion on Mar 31, 2017, down 0.5% over year-end 2016.
Discover Financial’s return on equity for the first quarter was 20%.
Share Repurchase Update
During the first quarter, the company repurchased approximately 7.4 million shares of common stock for $520 million.
Shares of common stock outstanding declined 1.6% from the prior quarter.
Zacks Rank and Stocks to Consider
Discover Financial presently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other firms from the space that have already reported results American Express Company (NYSE:AXP) , Visa Inc. (NYSE:V) and SLM Corporation (NASDAQ:SLM) beat their respective Zacks Consensus Estimate.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>
Discover Financial Services (DFS): Free Stock Analysis Report
SLM Corporation (SLM): Free Stock Analysis Report
American Express Company (AXP): Free Stock Analysis Report
Visa Inc. (V): Free Stock Analysis Report
Original post
Zacks Investment Research