Can Growing Costs Hurt Discover Financial's (DFS) Q1 Earnings?

Core Viewpoint - Discover Financial Services (DFS) is expected to report a decline in earnings per share for the first quarter of 2024, with a consensus estimate of $2.96, reflecting a 17.3% decrease from the previous year, while revenues are projected to increase by 8.2% to $4.1 billion [2]. Q4 Earnings Performance - In the previous quarter, DFS reported adjusted earnings of $1.54 per share, missing the consensus estimate by 38.4%, primarily due to rising operating costs and weak contributions from the Digital Banking segment [3]. Q1 Factors to Note - The anticipated growth in net interest income, expected to rise by 8% from $3.1 billion in the prior year, is a key driver for revenue performance, supported by strong asset expansion and favorable interest rates [4]. - Receivables growth is expected to be driven by robust sales, moderated payment rates, and improved new account growth, alongside cautious underwriting and marketing strategies [4]. Payment Services Performance - Increased debit transaction volume and higher spending in travel and entertainment are expected to positively impact the Payment Services unit, particularly PULSE and Diners Club volumes [5]. Non-Interest Income Growth - Non-interest income is projected to grow by 9.3% year-over-year, driven by improved loan fee income and higher net discount and interchange revenues, although high reward costs may partially offset this growth [5]. Net Interest Margin and Costs - The net interest margin is estimated at 10.82%, down from 11.34% a year ago, with profits likely impacted by rising costs and high provisions for bad loans [6]. - Operating expenses are expected to increase by over 17% year-over-year, driven by higher marketing costs and employee compensation, leading to a potential decline in the bottom line [7]. Earnings Whispers - The Earnings ESP for DFS is -1.67%, indicating a lower likelihood of an earnings beat, with the most accurate estimate at $2.91 per share, below the consensus [8].