DFS - Discover Financial Q2 Earnings Preview: Elevated Delinquencies Remain The Focus

2024-07-12 07:37:29 ET

Summary

• Discover Financial shares have been volatile due to management turnover and rising credit losses, but rallied after Capital One's acquisition announcement.
• Capital One's acquisition of Discover Financial is expected to face some antitrust regulatory scrutiny, but I view a deal as likely to be approved.
• Discover Financial's Q1 results showed a decline in earnings due to a reserve for card misclassification and elevated charge-offs.
• Discover Q2 earnings may face pressure from ongoing delinquencies, and this leaves shares unattractive into results.

While up 10% over the past year, shares of Discover Financial ( DFS ) have had a volatile journey. Management turnover and rising credit losses weighed on shares in mid-2023 and January 2024, but this was upset by the surprising news that Capital One Financial ( COF ) would acquire DFS, sending shares rallying. I last covered DFS before Q4 earnings, rating shares a “ sell .” While they did indeed fall on the earnings report as expected, the COF bid later caused shares to rally. As such, shares are up 22% since January vs the market’s 17% gain. With Discover poised to report Q2 earnings on July 17 ^th , now is a good time to preview results and review shares....

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