Discover Financial Services (DFSFree Report) reported second-quarter 2021 adjusted earnings of $5.55 per share, beating the Zacks Consensus Estimate of $3.68 by a whopping 50.8%. The bottom line rebounded from the year-ago quarter’s loss of $1.20 per share. Results were driven by marketing investments, growing sales trends and a solid credit performance.

This upside can also be attributed to strength in its Digital Banking and Payment Services businesses.

Operational Update

In the reported quarter, the company’s revenues — net of interest expenses — rose 34% year over year to $3.5 billion.

The top line beat the Zacks Consensus Estimate by 24.7% on the back of its Direct Banking business.

Interest expenses of $290 million decreased 39.8% year over year.

Total operating expenses increased 13.5% to $1.2 billion due to higher employee compensation and benefits, marketing and business development, and other expense.

Segmental Update

Digital Banking Segment

This segment’s pre-tax income came in at $1.5 billion against the year-ago quarter’s loss of $484 million. This is attributable to a decline in provision for credit losses and higher revenue net of interest expenses. However, the same was partly offset by higher operating expenses.

Total loans dipped 1% year over year to $87.7 billion. Credit card loans fell 2% to $68.9 billion.

Personal loans were down 6% while private student loans inched 1%, both on a year-over-year basis. Net interest income increased 5% year over year owing to a favourable impact from lower market rates and lower interest charge-offs.

Net interest margin was 10.68%, up 87 basis points from the year-ago quarter’s level.

Payment Services Segment

Pre-tax income was $692 million in the quarter under review, up from the year-earlier period’s figure of $29 million.

Payment Services volume was 22% above the prior-year period’s number.

PULSE dollar volume expanded 19% year over year, aided by growth in all debit products, led by an increased spend from the economic recovery.

Diners Club volume expanded 41% from the year-earlier quarter’s tally following the COVID-19 impact.

Network Partners volume rose 30%, backed by AribaPay.

Strong Financial Position

Discover Financial’s total assets were worth $110.9 billion as of Jun 30, 2021, down 2.5% year over year.

Total liabilities as of Jun 30, 2021 were $97.8 billion, down 6.1% year over year.

Total equity was $13.1 billion on Jun 30, 2021, up 36.6% year over year.

Share Repurchase and Dividend Update

In the second quarter, the company bought back shares worth $553 million. Shares of common stock outstanding dipped 1.6% from the previous quarter’s reading.

Management declared a new $2.4-billion share buyback plan. It also hiked the divided by 14% to 50 cents. The latest share repurchase planspans three quarters through Mar 31, 2022.

The company’s board of directors approved a quarterly cash dividend of 50 cents per share payable Sep 2, 2021 to its shareholders of record on Aug 19, 2021.

Zacks Rank

Discover Financial has a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases from Finance Sector

Here are a few companies worth considering from the finance sector as our model shows that these have the right combination of elements to beat on earnings this reporting cycle:

PJT Partners Inc. (PJTFree Report) has an Earnings ESP of +2.13% and a Zacks Rank #2, currently. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Moodys Corp. (MCOFree Report) has an Earnings ESP of +2.44% and a Zacks Rank of 3 at present.

Principal Financial Group, Inc. (PFGFree Report) has an Earnings ESP of +0.05% and is currently Zacks #3 Ranked.

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