Discover Financial Services (NYSE:DFS) DFS incurred second-quarter 2020 adjusted loss of $1.20 cents per share. The Zacks Consensus Estimate was of earnings of 5 cents per share. Moreover, the bottom line came against the year-ago quarter’s adjusted earnings of $2.32 per share. The results include a $1.3-billion addition to the allowance for credit losses. This underperformance was due to weak segmental performances.
Operational Update
In the reported quarter, the company’s revenues — net of interest expenses — declined 7% year over year to $2.6 billion due to lower discount and interchange revenues as well as loan fee income. However, the top line beat the Zacks Consensus Estimate by 1.1%.
Total loans dipped 1% year over year to $88.9 billion.
Interest expenses of $482 million decreased 25.3% year over year.
Total operating expenses slid 0.1% to $1.08 billion on the back of lower marketing and business development costs.
Segmental Update
Direct Banking Segment
This segment’s pre-tax loss of $484 million came against the year-ago quarter’s pre-tax income of $941 million. This was due to hike in provision for credit losses as well as weak net interest income.
Total loans slipped 1% year over year to $88.9 billion. Credit card loans declined 3% to $70.2 billion.
Personal loans decreased 1% while private student loans rose 4%, both on a year-over-year basis. Private student loans excluding purchased student loans also shot up 9% year over year.
Net interest income decreased 6% year over year, backed by net interest margin compression.
Net interest margin was 9.81%, down 66 basis points from the year-ago quarter.
Payment Services Segment
Payment Services pre-tax income was $23 million in the quarter under review, down 50% from the year-earlier period.
Payment Services volume was up 4% from the prior-year period.
PULSE dollar volume expanded 12% year over year, aided by higher average expense per transaction in response to the prevalent COVID-19 pandemic, the impact of stimulus funds accessible to customers and a spurt in e-commerce transactions.
Diners Club volume contracted 48.8% from the year-earlier quarter.
Network Partners volume grew 22%, backed by AribaPay.
Strong Financial Position
Discover Financial had total assets worth $113.7 billion as of Jun 30, 2020, up 2.8% year over year.
Total liabilities as of Jun 30, 2020 were $104.1 billion, up 5% year over year.
Total equity was $9.6 billion on Jun 30, 2020, down 16.1% year over year.
Share Repurchase Update
In response to the coronavirus outbreak, the company suspended its share buyback plan.
Zacks Rank
Discover Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Upcoming Releases From Finance Sector
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:
Sun Life Financial (NYSE:SLF) Inc. SLF has an Earnings ESP of +1.22% and a Zacks Rank of 3, currently. The company is scheduled to release second-quarter earnings on Aug 6.
Moodys Corporation (NYSE:MCO) MCO is set to report second-quarter earnings on Jul 29. The stock has a Zacks Rank of 3 and an Earnings ESP of +7.17% at present.
American Financial Group (NYSE:AFG), Inc. AFG is slated to announce second-quarter earnings on Aug 4. The stock has an Earnings ESP of +21.45% and is presently Zacks #3 Ranked.
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