Discover's Financial Dilemma
Discover Financial Services (NYSE: DFS) reported its second quarter earnings recently and, once again, the results were a bit of a mixed bag. Bulls on the stock can point to the 9% year-over-year growth of revenue net of interest expense to $2.4 billion. Discover's loan portfolio growth was also solid as total loans grew 8% to $78 billion and credit card loans, the company's largest loan portfolio, increased 8% to $61.8 billion.
Despite these solid numbers, however, the bears had ample figures to highlight as well. Net principal charge-offs, loans that Discovers believes it is now unlikely to collect, once again increased more than expected. This quarter principal charge-offs rose to $520 million, a 35% increase year-over-year. Provisions for loan losses, money Discover sets aside for loan payments it has yet to receive, also spiked to $640 million, a 55% increase year-over-year.
These numbers are growing faster than expected and, as a result, Discover management raised its guidance for the full year total loan charge-off rate to 2.7-2.8%. Largely as a result of this increase in loan liabilities, Discover's return on equity fell from 22% in 2016's second quarter to 19% this quarter.
Source: Fool.com
Discover Financial Services Stock
Discover Financial Services is currently one of the favorites of our community with 15 Buy predictions and no Sell predictions.
On the other hand, the target price of 133 € is below the current price of 133.9 € for Discover Financial Services, so the potential is actually -0.67%.
