Visa Inc (V), American Express Company (AXP), Discover Financial Services (DFS): These Financial Stocks Beat the Odds Again

Revenue and lower credit cost driven beat

Following the trend, Discover Financial Services (NYSE:DFS) also reported better-than-expected bottom line of $1.20 per share. Besides operating as a payments industry player, Discover Financial Services (NYSE:DFS) is also classified as a bank holding company. Better-than-expected revenue and lower expenses led to this earnings beat.

Driven by higher net interest income and fee income, revenue for the second quarter was 9% above the prior year levels. Net discount interchangeable revenue was 13% up from a year ago. Operating expense was 3% higher from the prior year levels, still it was lower than expected. At the same time, credit quality remained solid.

Since Discover Financial Services (NYSE:DFS) is also classified as a bank holding company, it’s worth noting the growth in its loans and spending. The company was able to grow its total loans 2% over the prior quarter and 6% over the prior year. Much of the increase occurred in its personal loans, while proprietary spending growth accelerated 30 bps over the prior quarter.

The future is bright for Discover Financial Services (NYSE:DFS) and I see continued earnings growth. Discover Financial Services (NYSE:DFS) continues to take market share and report sector leading card growth. Therefore, I believe it would remain a growth story within cards. Besides, the company is also expected to enter Home Equity lending in the current quarter, which should provide it with additional returns. Analysts at Citigroup believe that Discover Financial Services (NYSE:DFS) is an attractive risk/reward opportunity and they see a modest near-term upside in the stock due to growth in card lending and entry into Home Equity lending.

Conclusion

The second quarter witnessed favorable trends are far as the payments industry players were concerned. While the three aforementioned companies reported stronger-than-expected results, the future is not bright for all of them. I believe Discover Financial and Visa Inc (NYSE:V) are poised to benefit from the prevailing favorable environment in the payments industry.

The article These Financial Stocks Beat the Odds Again originally appeared on Fool.com and is written by Adnan Khan.

Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends American Express and Visa. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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