On Thursday, BTIG maintained a Neutral rating on Discover Financial Services (NYSE: NYSE:DFS) stock, citing mixed results in the company's updated guidance compared to current consensus estimates.
The financial services firm's guidance for 2024 shows an improvement in Net Interest Margins (NIM) at 11.2-11.4% against a consensus of 11.2%, and a more favorable outlook on Operating Expenses, with an expected increase in the mid-single digits year-over-year compared to the consensus estimate of a 19% rise.
However, the forecast for loan growth is slightly less optimistic, with projections of a low-to-mid single-digit year-over-year decline versus a consensus estimate of a 3% decrease.
Discover Financial's third-quarter earnings per share (EPS) for 2024 were 3% higher than the consensus and in line with BTIG's estimate. Pre-Provision Net Revenue (PPNR) was 2% lower than consensus due to operating expenses being 7% higher, but this was offset by a 7% lower provision for credit losses as the reserve rate decreased quarter-over-quarter.
The analyst believes the higher expenses are likely due to timing and expects shares to rise, given the updated guidance is more favorable than the consensus.
The completion of the merger with Capital One (NYSE: COF), which also holds a Neutral rating, is highlighted as a significant event for Discover Financial's future. The analyst expects that the outcome of this merger will have a more substantial impact on the company's stock performance than the current financial metrics.
Discover Financial is scheduled to host its earnings call on Friday at 8 a.m. Eastern Time, without a question and answer session. In light of the recent updates, BTIG has indicated that their estimates for Discover Financial are currently under review.
In other recent news, Discover Financial Services has reported a notable increase in its third-quarter profits, marking a 43% rise compared to the same period last year. This surge is primarily attributed to a 10% boost in net interest income, which reached $3.66 billion.
A decrease in its provisions for credit losses, which dropped to $1.47 billion, also contributed to the company's financial growth. The company's net income surged to $928 million, or $3.69 per share, a substantial increase from the previous year.
In addition to these earnings, Discover Financial Services reported third-quarter revenue of $4.45 billion, surpassing analyst estimates. Furthermore, amidst its financial growth, Discover is in the midst of a proposed $35 billion acquisition by Capital One.
These developments are part of recent news regarding Discover Financial Services. It's worth noting that while the company's financial performance reflects a robust quarter, future interest income might be impacted by recent rate cuts by the U.S. central bank.
InvestingPro Insights
Discover Financial Services' recent performance and future outlook are further illuminated by data from InvestingPro. The company's stock is currently trading near its 52-week high, with a robust 62.55% total return over the past year. This aligns with BTIG's expectation of rising share prices following the updated guidance.
InvestingPro data shows Discover Financial's P/E ratio at 13.26, suggesting a relatively attractive valuation compared to the broader market. This could be particularly interesting for investors considering the company's strong financial position and the potential impact of the Capital One merger.
Two key InvestingPro Tips highlight Discover's commitment to shareholder returns: the company has raised its dividend for 13 consecutive years and maintained dividend payments for 18 consecutive years. This consistent dividend policy may provide additional appeal to income-focused investors, especially given the current dividend yield of 1.9%.
For readers interested in a deeper analysis, InvestingPro offers 5 additional tips on Discover Financial Services, providing a more comprehensive view of the company's financial health and market position.
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