Discover Financial Stock To Edge Past The Revenue Consensus In Q1

DFS: Discover Financial Services logo
Discover Financial Services

Discover Financial (NYSE: DFS) is scheduled to report its fiscal Q1 2023 results on Wednesday, April 19, 2023 (after market close). We expect Discover Financial to post mixed results, with revenues beating the consensus and earnings matching (just below) the expectations. The credit card giant outperformed the street expectations in the fourth quarter of 2022. It reported total revenues of $3.7 billion – up 27% y-o-y, driven by a 24% rise in net interest income (NII) and a 47% increase in noninterest revenues. The growth in NII was because of higher net interest margins and loan growth. Similarly, the noninterest revenues were up due to higher loan fee income and an increase in discount & interchange revenues. We expect the same trend to continue in Q1. 

Our forecast indicates that Discover Financial’s valuation is $117 per share, which is 16% above the current market price of close to $101. Our interactive dashboard analysis on Discover Financial’s Earnings Preview has more details. 

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(1) Revenues expected to edge past the consensus estimates

Discover Financial’s revenues grew 10% y-o-y to $13.34 billion in FY 2022.

  • The company derives more than 80% of its total revenues from net interest income. It grew 16% y-o-y in the year due to improvements in the interest rates and higher outstanding loan balances. We expect the momentum to continue in the first quarter.
  • The noninterest revenues decreased by 9% y-o-y in 2022. It was because of lower unrealized gains on equity investments, partially offset by growth in loan fees and discount/interchange fees. We expect the noninterest revenues to improve in Q1.
  • Overall, we forecast Discover Financial’s revenues to touch $15.2 billion for the full-year 2023.

Trefis estimates Discover Financial’s fiscal Q1 2023 revenues to be around $3.70 billion, slightly above the $3.67 billion consensus estimate. 

(2) EPS is likely to match the consensus estimates

Discover Financial’s Q1 2023 adjusted earnings per share (EPS) is expected to be $3.91 per Trefis analysis, at par (just below) the consensus estimate of $3.94. The adjusted net income was reduced by 20% y-o-y to $4.3 billion in FY2022. It was mainly due to an unfavorable build-up in the provisions for credit losses from $218 million to $2.4 billion. We expect the same trend to continue in the first quarter. Overall, Discover Financial is likely to report an annual GAAP EPS of $13.56 for the full-year 2023. 

(3) Stock price estimate is 16% higher than the current market price

We arrive at Discover Financial’s valuation, using an EPS estimate of around $13.56 and a P/E multiple of just below 9x in fiscal 2023. This translates into a price of $117, which is 16% above the current market price of around $101. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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 Returns Apr 2023
MTD [1]
YTD [1]
Total [2]
 DFS Return 2% 3% 40%
 S&P 500 Return 1% 8% 85%
 Trefis Multi-Strategy Portfolio 1% 9% 244%

[1] Month-to-date and year-to-date as of 4/17/2023
[2] Cumulative total returns since the end of 2016

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