Discover Financial Posts Mixed Q4 Results; Shares Fall

Financial services company Discover Financial (DFS) has reported mixed results for the fourth quarter of 2021 as earnings surpassed estimates but revenue lagged. Shares of the company declined 4.2% in Wednesday’s extended trading session.

Earnings of $3.64 per share increased 41% year-over-year and came ahead of Street’s expectations of $3.52. Revenue during the quarter rose 4% year-over-year to $2.94 billion due to higher net interest income. However, it lagged analysts’ expectations of $2.99 billion.

Segment wise, Digital Banking pretax income of $1.5 billion increased 4%, reflecting a lower provision for credit losses and higher revenue net of interest expense. Total loans at the end of the quarter stood at $93.7 billion, up 4% year-over-year and 5% sequentially.

Meanwhile, Payment Services had a pretax loss of $97 million against an income of $24 million in the year-ago period. Payment Services and PULSE dollar volume increased 19% and 18%, respectively, year-over-year. Also, Network Partners volume climbed 29% from the prior year due to higher AribaPay volume.

Discover Financial’s CEO and President, Roger Hochschild, said, “Our record results in 2021 reflect the benefits of our integrated digital banking and payments model, the strength of our value proposition, and a supportive macroeconomic backdrop. It’s great to see that our investments in acquisition, brand, and technology contributed to our return to loan growth this past year, and should drive accelerated growth in 2022.”

Wall Street’s Take

Following the earnings release, J.P. Morgan analyst Richard Shane maintained a Buy rating on Discover Financial and lowered the price target to $142 from $150. The new price target implies 19.8% upside potential from current levels.

Shane sees 2022 as a transition year and believes that “the probability is shifting from 2023 earnings representing normalized earnings to 2023.” The analyst added that this reflects a “cyclical earnings peak,” driven by elevated inflation, rate uncertainty, and fewer tailwinds from labor market improvements as the U.S. approaches full employment.

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 6 Buys and 7 Holds. The Discover Financial stock price prediction of $139.15 implies 17.4% upside potential to current levels.

Blogger Opinion

TipRanks data shows that financial blogger opinions are 100% Bullish on DFS, compared to the sector average of 71%.

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