Discover's EPS Lags Est., Grows Y/Y - Analyst Blog
20 Dicembre 2012 - 1:39PM
Zacks
Discover Financial Services (DFS) reported
fourth-quarter 2012 earnings per share of $1.07, lagging the Zacks
Consensus Estimate of $1.13. However, earnings per share surpassed
the year-ago quarter’s earnings of 95 cents.
Moreover, net income improved 7.4% year over year to $551
million from $513 million. Net income allocated to common
shareholders also increased to $541 million from $508 million in
the year-ago quarter.
The improvement in net income was due to revenue growth and
improved interest income. Strong operating results in the Direct
Banking segment overshadowed the decline in pre-tax income of the
Payment Services segment.
Total revenue, net of interest expense, increased 11% year over
year to $2.0 billion. Net interest income also improved 11% year
over year to $1.39 billion.
Moreover, total other income increased 11% over the prior-year
quarter to $604 million. However, total other expenses jumped 20%
year over year to $800 million.
Direct Banking Segment
The Direct Banking segment reported pre-tax income of $827
million, reflecting a 7% increase from the year-ago quarter.
Discover card sales volume grew 6% year over year to $26.5
billion.
Total loans improved 6% year over year to $61.0 billion, boosted
by a 6% increase in both credit card and private student loans and
a 24% surge in personal loans. Other income increased 11% year over
year, primarily due to higher interchange revenue owing to improved
sales, additional revenues from Discover Home Loans, launched in
June 2012, and gain on sale of minority investment.
Expenses in the segment surged 18% year over year on increased
marketing expenses and elevated headcount along with higher
employee compensation and marketing expenditure related to the Home
Loan Center acquisition.
The credit card net charge-off rate declined 14 basis points
(bps) sequentially to 2.29%. However, the over-30-days delinquency
rate increased 5 bps over the prior quarter to 1.86%, reflecting a
reversal in the constantly improving credit trend since the fourth
quarter of 2009.
Besides, the provisions for losses hiked 6% or $19 million year
over year to $338 million, reflecting higher loan loss reserves,
which was partly offset by lower charge-offs. Reserve created
during the quarter was $38 million, against reserve release of $68
million in the year-ago quarter.
Payment Services Segment
The Payment Services segment’s pre-tax income fell 21% year over
year to $33 million. Revenues were up $8 million, reflecting an
increase in point-of-sale transactions on the PULSE network, which
carry a higher margin. Meanwhile, expenses increased $17 million
from the year-ago level as a result of a surge in marketing and
employee expenses due to the recent partnerships and other
expansion initiatives.
Payment Services dollar volume accelerated 13% from the year-ago
quarter to $49.0 billion, reflecting higher volume from PULSE and
Network Partners.
Financial Position
Discover had total assets worth $75.24 billion as of Nov 30,
2012, increasing from $68.78 billion as of Nov 30, 2011. Total
equity stood at $9.73 billion at the end of fiscal 2012, up from
$8.24 billion at the end of fiscal 2011. Book value per share was
$19.55 at the end of November 2012, compared with $15.59 as of Nov
30, 2011.
Share Repurchase Update
During the reported quarter, Discover repurchased 10 million
shares for $401 million under its $2 billion share repurchase
program.
Dividend Update
Concurrently, Discover announced a quarterly cash dividend of 14
cents per share, payable on Jan 17, 2013, to shareholders of record
as of Jan 3, 2013.
Zacks Rank
Currently, Discover caries a Zacks #2 Rank (Buy). We maintain a
long-term Neutral recommendation on the stock. Visa
Inc. (V), which closely competes with Discover shares the
same Zacks Rank, while MasterCard Incorporated
(MA) carries a Zacks #3 Rank (Hold).
DISCOVER FIN SV (DFS): Free Stock Analysis Report
MASTERCARD INC (MA): Free Stock Analysis Report
VISA INC-A (V): Free Stock Analysis Report
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