Discover Financial Services (DFS) reported its 10th straight quarter with a positive earnings surprise late last month, as third quarter 2012 earnings surpassed the Zacks Consensus Estimate by 17.8%. This Zacks #1 Rank (Strong Buy) has watched most analysts revise their earnings estimates higher in the past week, boosting Zacks Consensus Estimates for this year and next.
Furthermore, with a price-to-earnings (P/E) ratio of just 9.0, this Zacks #1 Rank (Strong Buy) direct banking and payment services company is a true value pick.
Strong Third Quarter Performance
On September 27, Discover Financial Services reported third quarter 2012 earnings of $1.21 per share, beating the Zacks Consensus Estimate by 17.8% and advancing from last year by 2.5%.
Total revenue (net of interest expense) increased 9.8% year over year to $1.96 billion. Net interest income improved 11% to $1.37 billion. Card sales volume advanced 4% from last year.
The quarter saw historic lows for credit card loan delinquencies and net charge-offs. The delinquency rate for loans over 30 days past due was 1.81% and the net charge-off rate was 2.43%.
Provision for loan losses increased 26% year over year to $126 million.
During the reported quarter, Discover Financial Services repurchased 10 million shares for $350 million under its $2 billion share repurchase program.
Positive Earnings Estimate Revisions
Over the last seven days, the Zacks Consensus Estimate for 2012 rose 6.4% to $4.51 as 13 of 17 estimates were revised upward. This represents a year-over-year increase of approximately 11%.
For 2013, the Zacks Consensus Estimate is up 5.1% to $4.36 in the same timeframe, as 13 of 17 estimates moved higher.
Along with a very attractive P/E multiple, Discover Financial Services has a price-to-book (P/B) ratio as low as 2.3 (a P/B ratio under 3.0 and P/E ratio below 15.0 indicate value.)
Moreover, the company has a 1-year return on equity (ROE) of 26.1%, higher than its peer group average of 21.0%.
Based in Riverwoods, Illinois, and founded in 1986, Discover Financial Services is a credit card issuing and electronic payment services company in the United States. In March 2009, Discover became a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act in connection with its participation in the U.S. Treasury’s Capital Purchase Program. The company offers its products and services with acceptance in more than 185 countries and territories.