What's in the Cards for Capital One (COF) in Q4 Earnings?

Zacks Equity Research
·5-min read

Capital One COF is slated to report fourth-quarter and 2020 results on Jan 26, after market close. While its earnings are expected to have witnessed a rise in the to-be-reported quarter, revenues are projected to have witnessed a decline 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. Further, 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 fourth 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 upward by 9.6% over the past 30 days. Also, the figure indicates a rise of 14.5% from the prior-year quarter’s reported number.

The consensus estimate for sales is pegged at $6.90 billion, suggesting a year-over-year decline of 7.1%.

Before we take a look at what our quantitative model predicts, let’s check the factors that are expected to have influenced Capital One’s fourth-quarter performance.

Key Factors to Note

Net interest income (NII): During the fourth quarter, the overall demand for consumer loans remained weak. In fact, credit card loan balances witnessed a decline in the quarter. Also, the Zacks Consensus Estimate for Capital One’s total average earning assets for the to-be-reported quarter is pegged at $395.3 billion, which indicates only a marginal rise from the prior quarter’s reported figure.

While the overall demand for credit card loans remained weak in the quarter due to the continued uncertainties related to the coronavirus pandemic, 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 $5.5 billion for the quarter indicates a marginal decline sequentially.

Fee income: Although the overall demand for credit card loans was not very impressive in the fourth quarter, card usage increased to some extent. Thus, on the expectation of a rise in card usage, the company’s interchange fee (constituting more than 60% of fee income) is likely to have increased. The Zacks Consensus Estimate for the same is pegged at $799 million, indicating a rise of 3.1% from the prior quarter’s reported number.

However, the consensus estimate for service charges and other customer-related fees (constituting more than 20% of fee income) of $304 million suggests a 5% decline sequentially.

Thus, total fee income is expected to have declined in the quarter. The consensus estimate for total non-interest income of $1.2 billion suggests a decline of 33.3% sequentially.

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 fourth quarter.

Asset quality: The consensus estimate for net charge-offs is pegged at $1.5 billion for the to-be-reported quarter, indicating a rise of 43.6% from the previous quarter.

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

The chances of Capital One beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.

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 -2.78%.

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

Stocks That Warrant a Look

Here are some 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.

Invesco Ltd. IVZ is slated to release earnings figures on Jan 26. The company, which flaunts a Zacks Rank #1 (Strong Buy) at present, has an Earnings ESP of +2.49%.

The Earnings ESP for Waddell & Reed Financial, Inc. WDR is +5.11% and it sports a Zacks Rank #1, currently. The company is scheduled to report quarterly numbers on Feb 2.

Hilltop Holdings Inc. HTH is slated to release earnings figures on Jan 28. The company currently sports a Zacks Rank #1 and has an Earnings ESP of +9.80%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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