Shares of Discover Financial Services (DFS) gained slightly in after-hours trading after the company reported earnings for its first quarter of Fiscal Year 2025. Earnings per share came in at $4.25, which beat analysts’ consensus estimate of $3.37 per share. Sales increased by 2% year-over-year, with revenue hitting $4.25 billion. This beat analysts’ expectations of $4.22 billion. The strong results were driven by lower credit loss provisions and increased revenue.
Total loans ended at $117.4 billion, down 7% year-over-year due to a student loan sale, though roughly flat when adjusted for the sale. Net interest income rose 2%, supported by a higher margin of 12.18%, while non-interest income also saw a modest increase. Credit performance remained mostly stable, with lower delinquency rates and a mix of charge-off trends. Meanwhile, Payment Services reported $91 million in pretax income, up 11%, fueled by strong volume growth in PULSE and Diners Club, even as overall payment volume declined 4% due to the planned exit of a network partner.
Nevertheless, this is likely the last earnings report from DFS, as its $35 billion merger with Capital One Financial (COF) received final regulatory approval, which is set to close on May 18. The deal will create the eighth-largest bank in the U.S., with about $637.8 billion in assets, and DFS will become a subsidiary of COF. Both banks said customer accounts will remain unchanged during and after the merger.
Is DFS Stock a Buy or Sell?
Turning to Wall Street, assuming something were to happen to the merger plans, analysts have a Moderate Buy consensus rating on DFS stock based on five Buys, five Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average DFS price target of $191.44 per share implies 6.7% upside potential.
