Discover Financial Services (DFS) is set to report fourth-quarter and full-year 2014 earnings results on Jan 21, 2015. Last quarter, it posted a 2.24% positive earnings surprise. Let us see how things are shaping up for this announcement.
Factors Affecting the Past Quarter
Discover Financial has grown to become one of the major card issuers in the U.S. and a leading innovator in the credit card industry. Last quarter, the company’s business unit and part of Discover Global Network – Diners Club International, Ltd. – entered into a network acceptance agreement with ACLEDA Bank Plc., which is Cambodia’s largest banking institution. This is expected to enhance Discover and Diners Club card acceptance in Cambodia. The international expansions along with the capital bolstering initiatives are expected to boost earnings.
However, significant marketing and business development expenses, dynamic debit environment coupled with the unfavorable economic scenario in Europe and consequent weak volumes in the Payments Services segment are negatives that are likely to mar the positives of Discover Financial.
Earnings Whispers?
Our proven model does not conclusively show that Discover Financial is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Discover Financial has an ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.30 per share.
Zacks Rank: Discover Financial has a Zacks Rank #3 (Hold) which increases the predictive power of ESP; but when combined with a 0.00% ESP, it makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some stocks in the finance sector you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
The Chubb Corporation (CB) with an Earnings ESP of +1.39% and a Zacks Rank #1 (Strong Buy).
MGIC Investment Corp. (MTG) with an Earnings ESP of +35.71% and a Zacks Rank #1.
RenaissanceRe Holdings Ltd. (RNR) with an Earnings ESP of +1.78% and a Zacks Rank #2 (Buy).
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