Discover Financial Services (DFS) Profit Drops, Misses Expectations

NEW YORK (TheStreet) -- Discover Financial Services (DFS) reported third-quarter earnings of $1.20 on revenue of $2.06 billion, just shy of Thomson Reuters-recorded expectations of $1.21 a share on $2.07 billion in revenue. In the year-ago quarter, the direct banker and payment services operator posted earnings of $1.24 a share.

Total loans saw a 5% quarterly improvement to $62.7 billion. Credit card loans accounted for $50.4 billion of the total, up 4% on the year-ago quarter.

"Discover's card loan growth continues to exceed industry growth while charge-offs achieved new record lows," said Chairman and CEO David Nelms.

However, an increased provision for loan losses of $333 million dragged on profitability. Discover increased its reserves by $197 million over the year-ago quarter, mainly on lower expectations certain debts would be recovered.

In extended trading, shares shed 1.9% to $52.73, contributing to the 0.39% loss realized throughout Monday.

TheStreet Ratings team rates Discover Financial Services INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate Discover Financial Services (DFS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Written by Keris Alison Lahiff.

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