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Why Is Capital One (COF) Up 2.2% Since Last Earnings Report?
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A month has gone by since the last earnings report for Capital One (COF - Free Report) . Shares have added about 2.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Capital One due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Capital One Q3 Earnings & Revenue Beat, Loan Balance Rise
Capital One’s third-quarter 2021 adjusted earnings of $6.86 per share easily surpassed the Zacks Consensus Estimate of $5.22. The bottom line improved 36% from the year-ago quarter.
Results benefited from a solid rise in loan balances, which supported net interest income and margin. Higher consumer confidence aided credit card business and non-interest income. Provision benefit, mainly due to reserve releases, also acted as a tailwind. However, an increase in operating expenses was a headwind. During the quarter, the company built a legal reserve of $45 million.
Net income available to common shareholders (GAAP basis) was $3 billion or $6.78 per share, up from $2.32 billion or $5.06 per share in the prior-year quarter.
Revenues & Expenses Rise, Loan Balance Up
Total net revenues were $7.83 billion, up 6% from the prior-year quarter. The top line also beat the Zacks Consensus Estimate of $7.43 billion.
Net interest income grew 11% from the prior-year quarter to $6.16 billion.
Net interest margin surged 67 basis points (bps) to 6.35%. This was largely driven by lower rates on interest-bearing liabilities, a rise in loan balances, and a fall in average cash balance, partly offset by higher average investment securities balance.
Non-interest income of $1.67 billion declined 8%. This was largely attributable to a substantial fall in net securities gains, partially offset by growth in net interchange fees (up 32%), and service charges and other customer-related fees (up 27%).
Non-interest expenses were $4.19 billion, rising 18%. Adjusted expenses also increased 18% to $4.14 billion.
Efficiency ratio was 53.46%, up from 48.07% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.
As of Sep 30, 2021, loans held for investment were $261.4 billion, up 5% from the prior quarter. Total deposits, as of the same date, fell marginally to $305.9 billion.
Credit Quality Improves
Provision for credit losses was a benefit of $342 million against a provision of $331 million in the year-ago quarter. This was mainly driven by $770 million of reserve releases.
The 30-plus day performing delinquency rate was stable at 1.97%. Net charge-off rate decreased 105 bps year over year to 0.67%. Allowance, as a percentage of reported loans held for investment, was 4.43%, down 207 bps.
Capital Ratios Improve
As of Sep 30, 2021, Tier 1 risk-based capital ratio was 15.7%, up from 14.8% a year ago. Common equity Tier 1 capital ratio was 13.8% as of Sep 30, 2021, up from 13%.
Share Repurchase Update
During the quarter, Capital One repurchased 16.7 million shares for $$2.7 under its $7.5 billion authorization.
Outlook
As a result of the full quarter of recent issuances and a partial quarter of the planned redemptions, the company expects fourth-quarter 2021 preferred dividends to be around $74 million. Looking ahead to the first quarter of 2022, the run rate for preferred dividends will decline to roughly $57 million per quarter.
A sequential increase in total marketing costs is expected in the fourth quarter mainly due to seasonality.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 7.64% due to these changes.
VGM Scores
At this time, Capital One has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Capital One has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Capital One (COF) Up 2.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Capital One (COF - Free Report) . Shares have added about 2.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Capital One due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Capital One Q3 Earnings & Revenue Beat, Loan Balance Rise
Capital One’s third-quarter 2021 adjusted earnings of $6.86 per share easily surpassed the Zacks Consensus Estimate of $5.22. The bottom line improved 36% from the year-ago quarter.
Results benefited from a solid rise in loan balances, which supported net interest income and margin. Higher consumer confidence aided credit card business and non-interest income. Provision benefit, mainly due to reserve releases, also acted as a tailwind. However, an increase in operating expenses was a headwind. During the quarter, the company built a legal reserve of $45 million.
Net income available to common shareholders (GAAP basis) was $3 billion or $6.78 per share, up from $2.32 billion or $5.06 per share in the prior-year quarter.
Revenues & Expenses Rise, Loan Balance Up
Total net revenues were $7.83 billion, up 6% from the prior-year quarter. The top line also beat the Zacks Consensus Estimate of $7.43 billion.
Net interest income grew 11% from the prior-year quarter to $6.16 billion.
Net interest margin surged 67 basis points (bps) to 6.35%. This was largely driven by lower rates on interest-bearing liabilities, a rise in loan balances, and a fall in average cash balance, partly offset by higher average investment securities balance.
Non-interest income of $1.67 billion declined 8%. This was largely attributable to a substantial fall in net securities gains, partially offset by growth in net interchange fees (up 32%), and service charges and other customer-related fees (up 27%).
Non-interest expenses were $4.19 billion, rising 18%. Adjusted expenses also increased 18% to $4.14 billion.
Efficiency ratio was 53.46%, up from 48.07% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.
As of Sep 30, 2021, loans held for investment were $261.4 billion, up 5% from the prior quarter. Total deposits, as of the same date, fell marginally to $305.9 billion.
Credit Quality Improves
Provision for credit losses was a benefit of $342 million against a provision of $331 million in the year-ago quarter. This was mainly driven by $770 million of reserve releases.
The 30-plus day performing delinquency rate was stable at 1.97%. Net charge-off rate decreased 105 bps year over year to 0.67%. Allowance, as a percentage of reported loans held for investment, was 4.43%, down 207 bps.
Capital Ratios Improve
As of Sep 30, 2021, Tier 1 risk-based capital ratio was 15.7%, up from 14.8% a year ago. Common equity Tier 1 capital ratio was 13.8% as of Sep 30, 2021, up from 13%.
Share Repurchase Update
During the quarter, Capital One repurchased 16.7 million shares for $$2.7 under its $7.5 billion authorization.
Outlook
As a result of the full quarter of recent issuances and a partial quarter of the planned redemptions, the company expects fourth-quarter 2021 preferred dividends to be around $74 million. Looking ahead to the first quarter of 2022, the run rate for preferred dividends will decline to roughly $57 million per quarter.
A sequential increase in total marketing costs is expected in the fourth quarter mainly due to seasonality.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 7.64% due to these changes.
VGM Scores
At this time, Capital One has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Capital One has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.