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Higher Interest Income to Aid Capital One (COF) Q1 Earnings

Zacks Equity Research
Updated

Capital One Financial Corporation COF is slated to release first-quarter 2018 results on Apr 24, after market close. The company is expected to witness an increase in total net interest income (NII) on a year-over-year basis.

Driven by an improving economy, purchase volume growth and credit card loans (part of broader consumer loan portfolio) continued to increase during the first quarter. This, along with higher interest rates, is likely to support Capital One’s credit card NII.

Moreover, the acquisition of Cabela's Incorporated’s credit card operations in September 2017, is expected to further aid credit card NII growth. The Zacks Consensus Estimate for domestic credit card NII for the quarter is $3.29 billion, which shows 6.2% year-over-year rise. Also, international credit card NII is projected to be $296 million, increasing 17%. Hence, the Zacks Consensus Estimate for credit card NII of $3.54 billion indicates 5.7% growth on a year-over-year basis.

Further, the consensus estimate for commercial banking NII of $585 million shows 3.5% year-over-year growth. Also, NII for consumer banking division is expected to be $1.61 billion, up 7.5% from the prior-year quarter.

Thus, Capital One will likely report an increase in total NII for to-be-reported quarter.

Other Factors at Play

Modest fee income growth: Capital One is expected to witness a rise in 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 first 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 will likely increase.

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

According to our quantitative model, chances of Capital One beating the Zacks Consensus Estimate in the first 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 — which is required to increase 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.

Zacks ESP: The Earnings ESP for Capital One is +0.79%.

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

Notably, the Zacks Consensus Estimate for earnings for the quarter of $2.31 reflects year-over-year jump of 32%. Also, the consensus estimate for sales for the to-be-reported quarter is $6.95 billion, which indicates 6.4% 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.

BOK Financial Corporation BOKF is slated to report first-quarter 2018 results on Apr 25. It has an Earnings ESP of +0.24% and a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

New York Community Bancorp NYCB is slated to release results on Apr 25. It has an Earnings ESP of +0.14% and carries a Zacks Rank #3.

SVB Financial Group SIVB is scheduled to release results on Apr 26. It has an Earnings ESP of +1.38% and a Zacks Rank #3.

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BOK Financial Corporation (BOKF) : Free Stock Analysis Report
 
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