Discover (DFS) Up 15.5% Since Last Earnings Report: Can It Continue?

Core Viewpoint - Discover Financial has reported strong third-quarter results driven by interest income growth, despite facing higher expenses [2][3]. Financial Performance - Adjusted earnings per share for Q3 2024 were $3.69, exceeding the Zacks Consensus Estimate of $3.28, and reflecting a 42% year-over-year increase [3]. - Revenues, net of interest expenses, rose 10% year-over-year to $4.45 billion, surpassing the consensus mark by 2.2% [3]. - Interest income reached $5.11 billion, an 11% increase year-over-year, beating the model estimate of $4.99 billion [5]. - Total operating expenses increased 16% year-over-year to $1.69 billion, higher than the estimate of $1.59 billion [6]. - Net income surged 41% year-over-year to $965 million [7]. Segment Performance - Digital Banking segment reported a pretax income of $1.2 billion, a 50% increase year-over-year, driven by lower provisions for credit losses [8]. - Total loans grew 4% year-over-year to $127 billion, with personal loans increasing by 9% [9]. - Payment Services segment's pretax income was $84 million, slightly down from the prior year [10]. Financial Position - As of September 30, 2024, total assets were $151.59 billion, with a liquidity portfolio of $24.80 billion [12]. - Borrowings decreased from $21.33 billion at the end of 2023 to $18.18 billion [13]. - Total equity rose from $14.83 billion at the end of 2023 to $17.26 billion [13]. Capital Deployment - Share repurchases are currently paused due to a merger with Capital One Financial Corporation, valued at $35.3 billion [14]. - A quarterly cash dividend of 70 cents per share has been declared, expected to remain at this level [14]. Guidance - Loan growth is anticipated to be in the low to mid-single digits, with a net interest margin forecasted between 11.2% and 11.4% [15]. - Operating expenses are expected to rise mid-single digits from $6 billion in 2023, excluding merger-related costs [15]. Market Outlook - Recent estimates for Discover have shown an upward trend, indicating positive market sentiment [16][18]. - The stock has an aggregate VGM Score of A, reflecting strong performance across growth, momentum, and value metrics [17].