See the Gains: Options Market Price Levels and Indices (NYSE: DFS)

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Is the consumer strong or not? There are some fiery views on this issue right now. The bulls point to still very high cash holdings, in the range of over $2 trillion, among US households. Bears will say that high prices for groceries and gas, as well as a declining personal savings rate, are warning signs that retail spending (excluding food and gas) will come under pressure in the months ahead.

Earlier this month, the June Advance Retail Sales report revealed positive month-over-month developments in consumer spending. But, after adjusting for inflation, real retail sales fell. In fact, retail sales, net of inflation, peaked in March of last year. All eyes are on key card spend data trends from companies such as Bank of America (BAC), JPMorgan Chase (JPM), American Express (AXP), Visa (V), Mastercard (MA) and Discover(NYSE: Homeless).

True retail sales are sideways

True retail sales are sideways

St. Louis Federal Reserve

According to BofA Global Research, Discover Financial Services is a diversified financial services provider primarily engaged in issuing credit cards to US consumers. The company also operates one of four major payment networks that process and clear point-of-sale transactions in North America. Additionally, DFS is one of the largest private student loan providers in the country and offers personal loans, home equity loans, and debit cards to its customers.

Remarkably, Discover trades at just 6.5 times last year’s earnings, according to the Wall Street Journal. The Illinois-based, $30 billion market cap company also boasts a dividend yield of 2.2%. On a forward-looking basis, DFS has a forward earnings multiple of just 7.5x, according to Koyfin Charts. We’ll know more about the earnings picture after today’s close when the company releases its second quarter results.

DFS Forward P/E Multiple History: inexpensive compared to history

DFS Forward P/E Multiple History: inexpensive compared to history

Koyfin Charts

BofA forecasts weak EPS growth trends through next year. Just like the Bloomberg Consensus. So stocks are cheap for a reason. Still, its P/E ratio could remain in “cheap” territory as earnings climb again in 2024. Additionally, the stock’s dividend yield is expected to rise if stocks continue to trade at current levels, according to BofA Global Research.

Find out earnings, valuation and dividend forecasts

Discover earnings, valuation and dividend forecasts

BofA Global Search

Wall Street Horizon is posting a confirmed earnings date tonight. There is also a conference call on Thursday morning. You can listen through the company’s website here.

Check Out the Corporate Events Calendar: Earnings Tonight, Call Thursday

Check Out the Corporate Events Calendar: Earnings Tonight, Call Thursday

wall street skyline

Let’s dig into the earnings game. According to ORATS, Discover has beaten EPS estimates in six of the past seven quarters. Unfortunately, the stock has traded lower after earnings in three of the last four earnings events, however, the April 2022 earnings reaction has been overwhelmingly positive.

DFS stocks have strong EPS beat history, but mixed stock performance trends

DFS stocks have strong EPS beat history, but mixed stock performance trends

ORATS

As of Tuesday’s close of trading, the at-the-money straddle is priced around $5.55. This implies a move in the stock price between now and Friday’s expiry of 5%. ORATS reports that the EPS estimate is $3.78 and there have been three upward revisions and two downward revisions since the previous report.

Traders Price-In A 5% Swing Post-Earnings

Traders Price-In at 5% Swing Post-Earnings

ORATS

The technical grip

DFS has made a round trip to its pre-pandemic highs. I see $88 as essential support. On the upside, there is a descending trendline that comes into play between $110 and $115. This is a critical area to watch after earnings. If it climbs above, the all-time high of $136 and change could be in play.

On the downside, however, there is a former gap near $70 which is concerning. Gaps are like “unfinished business” on a chart. This was a breakout gap as the stock consolidated from June to October 2020 before breaking through this trading range.

DFS Approaches Resistance Ahead Of Profits

DFS Approaches Resistance Ahead Of Profits

StockCharts.com

The essential

Watch for a bullish break above $115 on DFS shares after earnings. Stocks should avoid a bearish breakdown as support is much lower on the chart at $88. Options traders expect more than $5 up or down on this attractively priced company. The stock is up more than $20 from its June low, outperforming the financials sector during that time. Credit card spending and loan growth trends will be the key fundamentals to assess tonight following the release of the Q2 report.

Eleanor C. William