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Is a Beat in Store for Capital One (COF) in Q1 Earnings?

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Capital One COF is slated to report first-quarter 2021 results on Apr 27, after market close. While its earnings are expected to have witnessed a rise in the to-be-reported quarter, revenues are projected to have declined on a year-over-year basis.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results reflected an improvement in non-interest income and lower expenses. Also, credit costs declined, mainly due to reserve releases during the quarter.

Capital One does not have an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two and lagged in two of the trailing four quarters.

Capital One Financial Corporation Price and EPS Surprise

Capital One Financial Corporation Price and EPS Surprise
Capital One Financial Corporation Price and EPS Surprise

Capital One Financial Corporation price-eps-surprise | Capital One Financial Corporation Quote

Nevertheless, activities of the company during the first quarter encouraged analysts to revise estimates upward. The Zacks Consensus Estimate for Capital One’s earnings for the to-be-reported quarter has been revised 7.7% upward over the past 30 days. Also, the figure indicates a surge of 238.1% from the prior-year quarter’s reported number.

The consensus estimate for sales is pegged at $6.92 billion, suggesting a year-over-year decline of 4.6%.

Factors at Play

Net interest income (NII): During the first quarter, the overall demand for consumer loans improved modestly, though credit card loan portfolio witnessed a decline. The Zacks Consensus Estimate for total average earning assets of $390.8 billion indicates a marginal rise from the prior quarter’s reported figure.

While the overall demand for credit card loans remained soft in the quarter due to the continued uncertainties related to the coronavirus, Capital One’s efforts to strengthen its card operations are expected to have provided some support to loan growth.

Yet, because of the near-zero interest rate environment, the company’s NII is expected to have been negatively impacted. The consensus estimate for NII of $5.7 billion for the quarter indicates a 3.7% decline sequentially.

Fee income: Although the overall demand for credit card loans was not very impressive, card usage increased to some extent as consumer confidence improved during the quarter. This is likely to have supported Capital One’s interchange fee (constituting more than 60% of fee income). The Zacks Consensus Estimate for the same is $755 million, indicating a fall of 7.7% from the prior quarter’s reported number.

The consensus estimate for service charges and other customer-related fees (constituting more than 20% of fee income) of $327 million suggests a 3.3% decline.

Thus, total fee income is expected to have declined in the quarter. The consensus estimate for total non-interest income of $1.3 billion suggests a decline of 13.7%.

Expenses: Capital One has been witnessing a persistent rise in expenses over the past several years because of higher marketing costs. Despite the company’s investment in technology upgrades, overall costs are expected to have remained manageable in the first quarter.

Earnings Whispers

Our proven model shows that Capital One has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat this time around.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Capital One is +4.01%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Finance Stocks That Warrant a Look

Here are some other finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

The Earnings ESP for Invesco IVZ is +1.06% and it carries a Zacks Rank #3 at present. The company is slated to report quarterly numbers on Apr 27.

The Earnings ESP for Prosperity Bancshares, Inc. PB is +2.56% and it carries a Zacks Rank #3, currently. The company is scheduled to report quarterly numbers on Apr 28.

Carlyle Group CG is slated to report quarterly results on Apr 29. The company currently has an Earnings ESP of +1.46% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Capital One Financial Corporation (COF) : Free Stock Analysis Report

Invesco Ltd. (IVZ) : Free Stock Analysis Report

Carlyle Group Inc. (CG) : Free Stock Analysis Report

Prosperity Bancshares, Inc. (PB) : Free Stock Analysis Report

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