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Discover Slips Amid Lower-Than-Expected Loan Growth

The credit card giant swings to profit, but misses expectations for loans as balances drop year over year.
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Discover Financial Services  (DFS) - Get Report shares slipped Thursday, as analysts reacted to lower-than-expected loan growth and net interest income for the second quarter.

The credit card company recently traded at $123.69, down 1.48%. It has jumped 31% over the last six months amid the economic rebound.

“A lot of noise” filled the second quarter earnings report, said Vital Knowledge founder Adam Crisafulli, according to Bloomberg. He noted “tepid” net interest income and loan growth, though the results were largely in line with bank earnings.

Piper Sandler analyst Kevin Barker wrote, “Core pre-provision net revenue was roughly in-line with our estimate, but we did see a notable decline in loan balances on a year-over-year basis and versus our estimates,” according to Bloomberg.

Discover posted net income of $1.7 billion, or $5.55 a share, in the second quarter, swinging from a pandemic-induced loss of $368 million, $1.20 a share, last year.

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The FactSet analyst consensus called for profit of $4.11 a share in the latest quarter.

Net interest income rose 5% from a year ago, to $2.3 billion. Revenue, net of interest expense, totaled $3.58 billion, topping analysts’ expectation of $2.9 billion.

Earlier this month, Citigroup upgraded Discover to buy from neutral, saying it stands to gain from increased consumer payments.

Analyst Arren Cyganovich also raised his price target to $150 from $101. Discover has the "clearest near-term path" to benefit from the economic reopening of the country, the analyst said.

Analysts at Barclays also lifted their price target to $146 from $132, while affirming an overweight rating.