Hot Finance stock to watch: Discover Financial Services (NYSE: DFS)

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Discover Financial Services (NYSE: DFS) stock rose over 1.5% on 23rd October, 2019 (As of  9:45 am GMT-4; Source: Google finance) driven by better than expected results for the third quarter of FY 19. The net profit rose 6.9% to $770 million. The company’s return on equity for the third quarter of 2019 was 26%. The loan growth is led by 7% growth in credit card receivables. Standard merchandise balances are the main driver of card receivable growth while the contribution from promotional balances was minimal reflecting the company’s decision to reduce the level of growth from promotional activities over the past several quarters. About 60% of the increase in loan balance was from new accounts and about 40% from existing.

Moreover, the net interest income rose 8% to $2.4 billion from the prior year, due to three factors, first, higher loan balances, second, the higher revolve rate this quarter and third, somewhat lower promotional balances in this year’s quarter. Total non-interest income fell 1% to $498 million in the quarter from last year’s quarter. The main drivers of the decline were lower net discount and interchange revenue, partially offset by higher loan fee income.

DFS in the third quarter of FY 19 has reported the adjusted earnings per share of $2.36, beating the analysts’ estimates for the adjusted earnings per share of $2.29, as per Zacks Investment Research. The company had reported the adjusted revenue growth of 6.5 percent to $2.9 billion in the third quarter of FY 19, beating the analysts’ estimates for revenue of $2.88 billion. The revenue grew due to loan growth of 6%, which is consistent with the company’s expectation and a very strong 8% growth in net interest income. The 8% increase in provision for loan losses was mainly due to the seasoning of newer vintages and to a lesser extent by the continued supply driven normalization in the consumer credit industry. Further, Sales volume was up 4% from the prior year. Offsetting the decrease in net discount and interchange revenue was an increase of 17% in loan fee income. The increase is mainly due to an increase in late fee occurrences as well as an adjustment in late fee pricing tiers.

Additionally, during the third quarter of 2019, the company had repurchased approximately 5.1 million shares of common stock for $419 million. The company’s capital payout ratio for the last one year, including buybacks, was 79%.

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