Results: Discover Financial Services Beat Earnings Expectations And Analysts Now Have New Forecasts

By
Simply Wall St
Published
May 01, 2022
NYSE:DFS
Source: Shutterstock

Discover Financial Services (NYSE:DFS) last week reported its latest quarterly results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. It looks to have been a decent result overall - while revenue fell marginally short of analyst estimates at US$2.9b, statutory earnings beat expectations by a notable 17%, coming in at US$4.22 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

See our latest analysis for Discover Financial Services

earnings-and-revenue-growth
NYSE:DFS Earnings and Revenue Growth May 1st 2022

After the latest results, the 18 analysts covering Discover Financial Services are now predicting revenues of US$12.7b in 2022. If met, this would reflect a decent 9.5% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to fall 16% to US$15.02 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$12.5b and earnings per share (EPS) of US$14.16 in 2022. So the consensus seems to have become somewhat more optimistic on Discover Financial Services' earnings potential following these results.

There's been no major changes to the consensus price target of US$141, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Discover Financial Services, with the most bullish analyst valuing it at US$165 and the most bearish at US$115 per share. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Discover Financial Services' growth to accelerate, with the forecast 13% annualised growth to the end of 2022 ranking favourably alongside historical growth of 8.2% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 10% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Discover Financial Services is expected to grow much faster than its industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Discover Financial Services' earnings potential next year. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Discover Financial Services going out to 2024, and you can see them free on our platform here.

You still need to take note of risks, for example - Discover Financial Services has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.