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Capital One (COF) Stock Up 1% on Q4 Earnings & Revenue Beat

Zacks Equity Research

Shares of Capital One COF  rose nearly 1% after market close in response to fourth-quarter and 2019 results. Its fourth-quarter adjusted earnings of $2.49 per share easily surpassed the Zacks Consensus Estimate of $2.38. Also, it jumped 33% year over year.

Results reflect rise in net revenues, higher loan and deposit balances, and strength in card business. However, a rise in credit cost and higher operating expenses were the undermining factors.

After taking into consideration non-recurring items, net income available to common shareholders was $1.04 billion or $2.25 per share, down from $1.17 billion or $2.48 per share in the prior-year quarter.

For 2019, adjusted earnings of $12.09 per share grew 11% year over year but lagged the consensus estimate of $11.21. Net income available to common shareholders (as reported) declined 9% to $5.19 billion.

Revenues & Expenses Rise

Net revenues for the quarter were $7.43 billion, up 6% from the prior-year quarter. The figure beat the Zacks Consensus Estimate of $7.36 billion.

For 2019, net revenues increased 2% to $28.59 billion. It surpassed the consensus estimate of $28.56 billion.

Net interest income grew 4% to $6.07 billion. Net interest margin inched down 1 basis point (bp) to 6.95%.

Non-interest income of $1.36 billion increased 14% from the prior-year quarter. Lower service charges and other customer-related fees, and net securities losses were more than offset by rise in net interchange fees and other income.

Non-interest expenses of $4.16 billion were up 1%, mainly owing to 23% rise in salaries and associate benefits costs and 6% increase in communications and data processing costs.

Efficiency ratio was 56.03%, down from 58.92% in the year-ago quarter. A decrease in efficiency ratio indicates improvement in profitability.

As of Dec 31, 2019, loans held for investment were $265.8 billion, up 7% from the prior quarter. Total deposits, as of the same date, increased 2% sequentially to $262.7 billion.

Credit Quality: Mixed Bag

Net charge-off rate decreased 7 bps year over year to 2.60%. The 30-plus day performing delinquency rate declined 11 bps to 3.51%.

Also, allowance as a percentage of reported loans held for investment was 2.71%, down 23 bps. However, provision for credit losses rose 11% to $1.82 billion.

Profitability Ratios Decline, Capital Ratios Improve

Return on average assets was 1.23% at the end of the reported quarter, down from 1.38% in the year-ago quarter. Also, return on average common equity was 7.63%, down from 10.05% in the prior-year quarter.

As of Dec 31, 2019, Tier 1 risk-based capital ratio was 13.7%, up from 12.7% in the prior-year quarter end. Further, common equity Tier 1 capital ratio was 12.2% as of Dec 31, 2019, up from 11.2% on Dec 32, 2018.

Our Take

Capital One’s strategic acquisitions over the years have positioned it well for long-term growth. While rise in credit costs, lower rates and elevated expenses remain major near-term concerns, steady improvement in card business (leading to rise in interchange fees) is likely to aid profitability.

Capital One Financial Corporation Price, Consensus and EPS Surprise

 

Capital One Financial Corporation Price, Consensus and EPS Surprise

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

Currently, Capital One carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Dates of Other Bank Stocks

KeyCorp KEY, Associated Banc-Corp ASB and SVB Financial Group SIVB are scheduled to announce results on Jan 23.

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