On Monday, Discover Financial Services (DFS) reported a decline in its charge-off and delinquency rates, which hit a historic low in October 2011, after a slight increase in delinquency in September, when the charge-off continued to decline.
The company reported charge-offs amounting to $46.8 million or 3.26% of balances on an annualized basis for October, down from $45.8 million or 3.17% of balances on an annualized basis in September. The default rate was also substantially lower than 6.83% reported in October 2010.
Meanwhile, the delinquency rate also declined slightly to 2.48% in October from 2.5% in September and 4.34% in October 2010. Delinquency rate is the rate of delay in payments by 30 days or more. It is normally an indicator of future default rates.
The delinquency rate reached the highest point of 5.72% in October 2009, while the highest charge-off rate of 9.11% was experienced in February 2010.
The decline in delinquency in October is reassuring for credit card companies following the industry-wide trend of rising delinquency in September. Besides, Discover’s peer American Express Company (AXP) reported a delinquency rate of 1.5% in September 2011, up 10 basis points from 1.4% in August. Another peer, Capital One Financial Corp. (COF) reported a delinquency of 3.65%, up from 3.43% in August.
However, American Express and Capital One have not declared their delinquency and charge-off rates for October yet and it remains to be seen whether the improvement in delinquency in October is an industry-wide trend or is limited to Discover.
Earnings Review
Discover reported third-quarter 2011 earnings per share of $1.18, dramatically ahead of both the Zacks Consensus Estimate of 91 cents and 47 cents recorded in the year-ago quarter.
The Zacks Consensus Estimate for the company’s fourth-quarter 2011 earnings is currently 90 cents per share, up 40.2% year over year. For 2011, the Zacks Consensus Estimate stands at $4.00 per share, up 228.1% from 2010.
Currently, Discover carries a Zacks #2 Rank, implying a Buy rating for the short term.
On Monday, the shares of the company closed at $24.56, down 0.85%, on the New York Stock Exchange.
AMER EXPRESS CO (AXP): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
DISCOVER FIN SV (DFS): Free Stock Analysis Report
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