Capital One Q4 Earnings: A Turbulent Ride, but Can It Stay in the Fast Lane?

Capital One (NYSE: COF) is set to unveil its fiscal Q4 2023 results on Thursday, January 25, 2024. As per expectations, revenues are projected to slightly exceed estimates while earnings are likely to fall short of the consensus.

During the last quarter, the company beat street estimates by registering a 6% year-over-year increase in the top line, reaching $9.4 billion. This impressive growth was mainly propelled by a 6% surge in the net interest income (NII) due to higher interest-earning assets, coupled with an 8% rise in noninterest revenues. It is anticipated that this positive momentum will persist in the upcoming quarter. For a more detailed analysis, refer to Capital One’s Earnings Preview. 

Stock Performance: A Rollercoaster Ride

Amid the prevailing financial climate, COF stock has surged by 30%, leaping from $100 in early January 2021 to around $130 as of now. However, this ascent has been far from consistent. The stock delivered returns of 47% in 2021, followed by a dip of 36% in 2022, and then rebounded with a 41% gain in 2023. Comparatively, the S&P 500 exhibited returns of 27% in 2021, a downturn of 19% in 2022, and a rebound of 24% in 2023 – hinting at Capital One’s underperformance vis-à-vis the S&P in 2022. Notably, outpacing the S&P 500 consistently in both prosperity and adversity has proved to be a daunting task for individual stocks, including stalwarts in the Financials sector such as V, JPM, and MA, as well as megacap luminaries like GOOG, TSLA, and MSFT. Conversely, Trefis’ High-Quality Portfolio, comprising 30 stocks, has outshone the S&P 500 every year over the same period. The looming question is, will COF grapple with a situation akin to 2022 and lag behind the S&P over the next year, or will it witness a formidable surge?

Revenue & Earnings Projections for Q4 2023

Capital One demonstrated an 8% year-over-year revenue increase, reaching $27.3 billion in the initial three quarters of 2023. This upswing was driven by a 9% surge in NII and a 5% uptick in noninterest revenues.

• The NII soared by 9% year-over-year during the initial nine months of 2023 due to the proliferation of interest-earning assets, and a parallel trend is foreseen for Q4.
• Noninterest revenues witnessed a 5% uptick over the same period, primarily propelled by higher net interchange fees, buoyed by increased card purchase volumes. A parallel trajectory is anticipated for Q4.
• Overall, the forecast indicates that Capital One’s revenues will touch $36.78 billion for FY2023. Trefis’ estimate for Capital One’s fiscal Q4 2023 revenues hovers around $9.49 billion, marginally exceeding the $9.46 billion consensus estimate.

On the other hand, Capital One Q4 2023 adjusted earnings per share (EPS) are projected to stand at $2.60, 2% below the consensus estimate of $2.64. The adjusted net income witnessed a 33% year-over-year decrease to $3.9 billion in the initial nine months of 2023, attributed to a substantial surge in provisions for credit losses from $3.43 billion to $7.57 billion. Nonetheless, anticipations are rife for an improvement in the net interest margin in the Q4 results. In totality, Capital One is expected to reveal an annual GAAP EPS of $12.91 for full-year 2023.

Market Price Outlook

Given an EPS estimate of approximately $12.91 and a P/E multiple slightly above 10x in fiscal 2023, the valuation for Capital One is pegged at $135 per share, representing a 4% premium over the current market price of around $130.

Note: P/E multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

[1] Returns as of 1/23/2024
[2] Cumulative total returns since the end of 2016

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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.