Credit card issuer Discover Financial Services (DFS) reported sharply higher third quarter earnings Thursday, helped by big one-time payment stemming from a lawsuit settlement.
The Riverwoods, Illinois-based company reported third quarter net income of $577.4 million, or $1.07 per share, up from $180.1 million, or 37 cents per share, in the year-ago period.
Excluding a one-time after-tax gain of $287 million related to an antitrust settlement with Visa (V) and MasterCard (MA), the company's adjusted profit was 52 cents per share.
On average, Wall Street analysts expected a much lower adjusted profit of only 12 cents per share.
Discover's said its charge-off rate, or loans not expected to be repaid, rose to 8.39% in the quarter, up from 7.79% last year. It also said that sales volume fell 7% from last year to $23 billion.
Discover shares rose 46 cents, or +3%, in morning trading Thursday.
The Bottom Line
We have avoided shares of DFS since our early June coverage began last year, when the stock was trading at $15.70. The company has a .52% dividend yield, based on last night’s closing stock price of $15.32. The stock has technical support in the $12.00-$12.50 price area. If the shares can firm up, we see overhead resistance around the $17-$18 price range. We would remain on the sidelines for now.
Discover Financial Services (DFS) is not recommended at this time, holding a Dividend.com DARS Rating of 3.3 out of 5 stars.
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