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Discover Financial Services shares slide despite topping earnings expectations

By Sam Boughedda 

Discover Financial Services (NYSE:DFS) shares tumbled premarket Thursday after the company reported its fourth quarter earnings, topping analyst expectations.

Discover posted earnings of $3.77 per share, $0.12 above the analyst consensus estimate of $3.65. Revenue for the quarter came in at $3.73 billion versus the consensus estimate of $3.67B.

The company said its results were driven by record loan growth and margin expansion, factors which it believes should “sustain strong revenue growth into next year.”

“This revenue momentum, our disciplined approach to credit management, and our capital generative model position us to generate shareholder value through a range of economic environments,” said Roger Hochschild, CEO and President of Discover.

Discover shares have fallen more than 7%, following the report.

Reacting to the release, Oppenheimer analysts said: “4Q22 EPS of $3.77 vs. our/consensus’ $3.73E/$3.65E. 2023FY guidance has some efficiency YoY gains while the consensus shocker is DFS’ 3.5–3.9% NCO guidance. Even to reach the low end, it likely means card NCOs near 5%.”

“With 4Q22 YoY volume +8% while loan growth was +20.2%, consumers are starting to significantly increase their revolve rates, likely indicating pressure. Peers may not share (this quarter) DFS’ expected NCO normalization/ramp, yet it will likely make investors incrementally cautious on low FICO players,” they added.

Meanwhile, BofA analysts told investors Discover’s weak credit outlook outweighs its solid quarter.

“Shares of credit card issuer Discover Financial (DFS) were trading approx. 6% lower in the after-market following its 4Q print and initial 2023 outlook. We believe the 2023 credit outlook in particular has spooked investors. Specifically, DFS’ guidance calls for NCOs to increase to 3.5-3.9% in 2023, up from 1.82% in 2022 and consensus expectations for 2023e NCOs at 3.05%,” explained the analysts.



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