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Card Interest Income to Drive Capital One (COF) Q3 Earnings?

Capital One Financial Corporation COF is slated to release third-quarter 2017 results on Tuesday, Oct 24, after market close. The company is expected to witness a rise in net interest income (NII) in credit card and commercial banking divisions while NII for consumer banking segment is likely to fall.

Driven by improving economy and purchase volume growth, credit card loans (part of broader consumer loan portfolio) continued to increase during the quarter. This will support Capital One’s credit card NII. The Zacks Consensus Estimate for credit card NII of $3.38 billion shows a 2.7% sequential rise.

Further, the Zacks Consensus Estimate for commercial banking NII of $583 million shows 2.5% growth on a sequential basis. However, NII for consumer banking division is expected to be $1.52 billion, down 3.7% from the prior quarter.

Overall, we believe Capital One will report an increase in total NII for to-be-reported quarter as rising interest rates will further support growth.

Other Factors to Impact Q3 Results

Modest fee income growth: Like the prior quarter, Capital One is expected to witness a rise in its fee income in the to-be-reported quarter. As the quarter is likely to show increased card usage, interchange fees (major part of its fee income) are expected to rise.

Marginal increase in expenses: Similar to the prior quarter, operating expenses are expected to trend upward in the third 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 increase in interest income, Capital One will continue to witness a rise in credit card delinquency rates. Also, the company expects a rise in auto businesses charge-off rate of nearly 15-20 basis points in the third quarter, owing to accounting changes in the timing of charge-offs of bankrupt accounts.

Here is what our quantitative model predicts:

The chances of Capital One beating the Zacks Consensus Estimate in the third quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

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

Zacks ESP: The Earnings ESP for Capital One is +0.44%.

Zacks Rank: Capital One currently has a Zacks Rank #3, which further increases the predictive power of ESP.

Notably, the Zacks Consensus Estimate for earnings the to-be-reported quarter has been revised nearly 1% downward over the last 30 days to $2.15, with four out of 11 estimates moving lower. However, the Zacks Consensus Estimate reflects a year-over-year improvement of 6%.

Also, the Zacks Consensus Estimate for sales of $6.83 billion indicates 5.6% growth from the prior-year quarter.

Capital One Financial Corporation Price and EPS Surprise

 

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

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Other Stocks That Warrant a Look

Here are a few other 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.

Franklin Resources, Inc. BEN is slated to report third-quarter results on Oct 26. The stock has an Earnings ESP of +0.56% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lazard Ltd. LAZ has an Earnings ESP of +1.39% and a Zacks Rank of 1. It is scheduled to report third-quarter results on Oct 26.

Santander Consumer USA Holdings Inc.’s SC Earnings ESP is +6.54% and it carries a Zacks Rank #2. The company is slated to release third-quarter results on Oct 27.

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Capital One Financial Corporation (COF) : Free Stock Analysis Report
 
Santander Consumer USA Holdings Inc. (SC) : Free Stock Analysis Report
 
Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
 
Lazard Ltd. (LAZ) : Free Stock Analysis Report
 
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