Capital One COF is scheduled to report first-quarter 2024 results on Apr 25, after market close. Its earnings and revenues are expected to have witnessed increases on a year-over-year basis.
In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Results were adversely impacted by higher provisions, increasing deposit costs and a rise in non-interest expenses. However, an increase in net interest income (NII) and higher loan balance offered support.
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-eps-surprise | Capital One Financial Corporation Quote
Key Factors & Estimates for Q1
Net Interest Income: The overall lending scenario was decent in the quarter on the back of some certainty in the macroeconomic backdrop. The Zacks Consensus Estimate for COF’s first-quarter total average earning assets of $450.1 billion indicates a 3.4% rise from the prior-year quarter’s reported figure.
Moreover, the Federal Reserve kept interest rates unchanged at a 22-year high of 5.25-5.5% during the quarter.
Thus, despite higher funding costs exerting some pressure on the top line, the company’s NII is expected to have improved, driven by higher rates and decent loan growth. Also, Capital One’s efforts to strengthen its card operations are expected to have provided support. The consensus estimate for NII of $7.49 billion indicates a 4.2% year-over-year improvement. Our estimate for NII is pinned at $7.56 billion.
Fee income: Capital One’s interchange fees (constituting more than 60% of fee income) are likely to have improved in the quarter. The Zacks Consensus Estimate for the same is pegged at $1.14 billion, indicating a marginal rise from the prior-year quarter’s reported figure. Our estimate for the metric is $1.11 billion.
The consensus estimate for service charges and other customer-related fees of $419 million implies a 10.6% increase. The Zacks Consensus Estimate for other non-interest income is pegged at $279 million, indicating a 40.2% year-over-year rise. Our estimates for service charges and other customer-related fees, and other non-interest income are $417.4 million and $216.9 million, respectively.
The consensus estimate for total non-interest income of $1.84 billion suggests a rise of 7.4% from the prior-year quarter’s reported figure. We expect the metric to grow to $1.74 billion.
Expenses: Capital One has been witnessing a persistent rise in expenses over the past several years because of higher marketing costs. The company’s investment in technology upgrades leads to higher costs. These, along with inflation issues, are expected to have led to an increase in operating expenses in the first quarter.
Our estimate for total non-interest expenses is pinned at $5.11 billion, implying a year-over-year increase of 3.3%.
Asset Quality: Capital One is expected to have set aside money for potential bad loans, given the risks due to geopolitical and macroeconomic concerns.
Our estimate for provision for credit losses is pegged at $2.64 billion, indicating a 5.5% decline from the year-ago quarter’s reported figure.
Key Development in the Quarter
In February, Capital One inked an agreement to acquire Discover Financial Services in an all-stock transaction valued at $35.3 billion. The strategic move is poised to reshape the landscape of the credit card industry, create a behemoth in the industry and unlock substantial value for shareholders.
The deal, expected to close in late 2024 or early 2025, is expected to generate and deliver attractive accretion and returns for shareholders. Expense synergies of $1.5 billion in 2027, coupled with network synergies of $1.2 billion, underscore the value-creation potential of the merger. The transaction will likely result in a more than 15% accretion to adjusted non-GAAP earnings per share by 2027.
Moreover, the deal is anticipated to yield a return on invested capital of 16% in 2027, accompanied by an internal rate of return exceeding 20%.
Earnings Whispers
According to our quantitative model, the chances of Capital One beating the Zacks Consensus Estimate for earnings 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 are reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Capital One is -0.94%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for Capital One’s first-quarter earnings of $3.34 has been unchanged over the past seven days. The figure indicates a rise of 44.6% from the prior-year quarter’s reported number.
The consensus estimate for sales is pegged at $9.34 billion, suggesting a year-over-year increase of 4.9%.
Stocks That Warrant a Look
A couple of 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 this time, are Trustmark Corporation TRMK and Ares Capital Corporation ARCC.
TRMK is scheduled to release first-quarter 2024 earnings on Apr 23. The company carries a Zacks Rank of 3 at present and has an Earnings ESP of +1.26%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Earnings ESP for ARCC is +0.38%. The stock carries a Zacks Rank of 3 at present. ARCC is slated to report first-quarter 2024 results on May 1.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Capital One Financial Corporation (COF) : Free Stock Analysis Report
Ares Capital Corporation (ARCC) : Free Stock Analysis Report
Trustmark Corporation (TRMK) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
