Will Discover Financial (DFS) Beat Q3 Earnings Estimates?
We expect direct banking and payment services company, Discover Financial Services (DFS) to beat expectations when it reports third-quarter 2014 earnings on Oct 21, 2014.
Why a Likely Positive Surprise?
Our proven model shows that Discover Financial is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.75%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Discover Financial carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Discover Financial’s Zacks Rank #2 and +0.75% ESP makes us confident of an earnings beat in the coming week.
What is Driving the Better-than-Expected Earnings?
An improvement in consumer spending, wallet share and credit quality trends are expected to lead to a positive earnings surprise in the quarter. Additionally, reduction in interest rate for student loans past quarter and introduction of an in-school repayment product, aimed to draw in a greater number of students, was successful and is expected to draw a greater number of students, thereby increasing Discover Financial’s student loan originations. Moreover, the company provided 5% Cashback Bonus on gas purchases through Discover More and Discover it card during the third quarter, which should draw more customers and thus contribute positively to earnings.
The positive trend is seen in the trailing four-quarter average surprise of 4.59%, which was greatly aided by the 3.85% surprise in the last reported quarter. This was possible because of loan growth and share repurchases on the part of Discover Financial.
Other Stocks to Consider
Discover Financial is not the only stock looking up this earnings season. We also see a likely earnings beat coming from these three companies in the same sector:
World Acceptance Corp. (WRLD) has an Earnings ESP of +1.38% and a Zacks Rank #2.
Santander Consumer USA Holdings Inc. (SC) has an Earnings ESP of +3.23% and a Zacks Rank #3 (Hold).
Ally Financial Inc. (ALLY) has an Earnings ESP of +2.44% and a Zacks Rank #3.
Read the Full Research Report on DFS
Read the Full Research Report on WRLD
Read the Full Research Report on SC
Read the Full Research Report on ALLY
Zacks Investment Research
