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What's in the Cards for Capital One (COF) in Q1 Earnings?

Zacks Equity Research

Capital One COF is scheduled to announce first-quarter 2019 results on Apr 25, after market close. Its earnings and revenues are projected to grow year over year.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate. Results were adversely impacted by decline in non-interest income and higher costs, while increase in net interest income and lower provisions acted as tailwinds.

Capital One has an impressive earnings surprise history. Its earnings surpassed estimates in three of the trailing four quarters, the average positive surprise being 5.3%.

Capital One Financial Corporation Price and EPS Surprise

 

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

Nonetheless, the company’s activities in the first quarter were not enough to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of $2.68 moved nearly 1% lower over the past seven days. It indicates growth of 1.1% from the year-ago reported figure. Also, the consensus estimate for revenues of $7.01 billion suggests 1.4% rise.

Factors to Impact Q1 Results

Modest improvement in net interest income (NII): Per the Fed’s latest data, consumer loans, specially credit card loans recorded decent growth in the first quarter. This along with Capital One’s efforts to further strengthen its card operations and higher interest rates will support NII to some extent.

However, flattening of the yield curve and higher deposit betas are likely to slightly hamper growth. Further, the Zacks Consensus Estimate for average interest earning assets of $330.6 billion suggests a 1.2% decline from the year-ago reported figure. Thus, NII is likely to record a slight rise.

Slight fee income growth: Capital One is expected to record an increase in fee income in the to-be-reported quarter. As the quarter might have witnessed an increase in card usage, interchange fees (major part of its fee income) are expected to rise.

Expenses to rise: Operating expenses are expected to trend upward in the to-be-reported quarter. Specifically, marketing expenses will likely remain elevated with rising loan growth opportunities.

Asset quality to worsen: While improvement in card loans is leading to an increase in interest income, Capital One will continue witnessing a rise in credit card delinquency rates. Also, the charge-off rate in auto finance business might increase.

Now, let’s have a look at what our quantitative model predicts:

The chances of Capital One beating the Zacks Consensus Estimate in the first quarter are less. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 -3.60%.

Zacks Rank: Capital One currently has a Zacks Rank #3. This increases the predictive power of ESP but we need to have positive ESP to be sure of an earnings beat.

Stocks That Warrant a Look

Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release.

BankUnited, Inc. BKU has an Earnings ESP of +1.89% and carries a Zacks Rank of 3 at present. The company is slated to release results on Apr 24.

SVB Financial Group SIVB is slated to release results on Apr 25. It has an Earnings ESP of +0.42% and currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Associated Banc-Corp ASB is scheduled to release results on Apr 25. It presently has an Earnings ESP of +0.55% and a Zacks Rank #3.

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