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COF vs. DFS: Which Stock is Poised for Better Q3 Earnings?
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Two major consumer loan providing companies — Capital One Financial Corporation (COF - Free Report) and Discover Financial Services (DFS - Free Report) — are slated to announce third-quarter 2017 results tomorrow, after market close. Let’s check out which stock is likely to report better earnings.
Capital One
Capital One is projected to witness an improvement in revenues in the to-be-reported quarter. This is likely to be driven by increase in net interest income (NII).
Given the improving economy and purchase volume growth, credit card loans continued to rise during the quarter. This will aid Capital One’s credit card NII. The Zacks Consensus Estimate for credit card NII of $3.38 billion indicates a 2.7% rise from the last quarter.
Also, the Zacks Consensus Estimate for commercial banking NII of $583 million shows 2.5% growth on a sequential basis. Nevertheless, NII for consumer banking division is anticipated to decline 3.7% from the prior quarter to $1.52 billion.
Therefore, we believe Capital One will report an increase in total NII in to-be-reported quarter as rising interest rates will further support growth. Also, fee income will likely witness a rise mainly attributable to higher interchange fees.
The Zacks Consensus Estimate for sales of $6.83 billion reflects 5.6% year-over-year rise.
On cost front, operating expenses are expected to marginally trend upward. Specifically, marketing expenses should remain elevated with rising loan growth opportunities.
Notably, the Zacks Consensus Estimate for earnings of $2.15 shows 6% growth from the prior-year quarter. Also, our quantitative model predicts an earnings beat for Capital One as it has an Earnings ESP of +0.44% and a Zacks Rank #3 (Hold).
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Discover Financial is expected to record a fall in revenues in the third quarter. The Zacks Consensus Estimate for sales of $1.87 billion shows 18.8% year-over-year decline.
Revenue performance is mostly likely to be dismal due to its Payments Service segment, which has been a drag over the past several quarters. This quarter is expected to be no different. The Zacks Consensus Estimate for its total transaction volume (in dollar terms) is $46.8 billion, down 6.6% from the last quarter.
Further, card sales volume, which was a major revenue driver in the prior quarter, is projected to show a decline. The Zacks Consensus Estimates for card sales volume (in dollar terms) of $32 billion reflect a marginal decline sequentially. Also, the Zacks Consensus Estimates for total credit card volume (in dollar terms) of $34.9 billion indicates an 1% fall from the prior quarter.
Additionally, Discover Financial’s extensive promotional activities are likely to result in an increase in total expenses, thus impacting the bottom line. The Zacks Consensus Estimate for earnings of $1.53 shows an 1.9% decline from the prior-year quarter.
Also, our quantitative model predicts that the chances of earnings beat for Discover Financial are low. The stock has Earnings ESP of +1.24% and a Zacks Rank #4 (Sell), which lower the predictive power of Earnings ESP. We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
From both sales and earnings perspective, Capital One is well positioned to report better Q3 results. Also, the stock is likely to surpass the Zacks Consensus Estimate for earnings.
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COF vs. DFS: Which Stock is Poised for Better Q3 Earnings?
Two major consumer loan providing companies — Capital One Financial Corporation (COF - Free Report) and Discover Financial Services (DFS - Free Report) — are slated to announce third-quarter 2017 results tomorrow, after market close. Let’s check out which stock is likely to report better earnings.
Capital One
Capital One is projected to witness an improvement in revenues in the to-be-reported quarter. This is likely to be driven by increase in net interest income (NII).
Given the improving economy and purchase volume growth, credit card loans continued to rise during the quarter. This will aid Capital One’s credit card NII. The Zacks Consensus Estimate for credit card NII of $3.38 billion indicates a 2.7% rise from the last quarter.
Also, the Zacks Consensus Estimate for commercial banking NII of $583 million shows 2.5% growth on a sequential basis. Nevertheless, NII for consumer banking division is anticipated to decline 3.7% from the prior quarter to $1.52 billion.
Therefore, we believe Capital One will report an increase in total NII in to-be-reported quarter as rising interest rates will further support growth. Also, fee income will likely witness a rise mainly attributable to higher interchange fees.
The Zacks Consensus Estimate for sales of $6.83 billion reflects 5.6% year-over-year rise.
On cost front, operating expenses are expected to marginally trend upward. Specifically, marketing expenses should remain elevated with rising loan growth opportunities.
Notably, the Zacks Consensus Estimate for earnings of $2.15 shows 6% growth from the prior-year quarter. Also, our quantitative model predicts an earnings beat for Capital One as it has an Earnings ESP of +0.44% and a Zacks Rank #3 (Hold).
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
(Read more: Card Interest Income to Drive Capital One Q3 Earnings?)
Also, Capital One has a decent earnings surprise history, as evident from the chart below:
Capital One Financial Corporation Price and EPS Surprise
Capital One Financial Corporation Price and EPS Surprise | Capital One Financial Corporation Quote
Discover Financial
Discover Financial is expected to record a fall in revenues in the third quarter. The Zacks Consensus Estimate for sales of $1.87 billion shows 18.8% year-over-year decline.
Revenue performance is mostly likely to be dismal due to its Payments Service segment, which has been a drag over the past several quarters. This quarter is expected to be no different. The Zacks Consensus Estimate for its total transaction volume (in dollar terms) is $46.8 billion, down 6.6% from the last quarter.
Further, card sales volume, which was a major revenue driver in the prior quarter, is projected to show a decline. The Zacks Consensus Estimates for card sales volume (in dollar terms) of $32 billion reflect a marginal decline sequentially. Also, the Zacks Consensus Estimates for total credit card volume (in dollar terms) of $34.9 billion indicates an 1% fall from the prior quarter.
Additionally, Discover Financial’s extensive promotional activities are likely to result in an increase in total expenses, thus impacting the bottom line. The Zacks Consensus Estimate for earnings of $1.53 shows an 1.9% decline from the prior-year quarter.
Also, our quantitative model predicts that the chances of earnings beat for Discover Financial are low. The stock has Earnings ESP of +1.24% and a Zacks Rank #4 (Sell), which lower the predictive power of Earnings ESP. We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
(Read more: Can Card Sales Drive Discover Financial's Q3 Earnings?)
Discover Financial has an impressive earnings surprise history, as evident from the chart below:
Discover Financial Services Price and EPS Surprise
Discover Financial Services Price and EPS Surprise | Discover Financial Services Quote
Our Take
From both sales and earnings perspective, Capital One is well positioned to report better Q3 results. Also, the stock is likely to surpass the Zacks Consensus Estimate for earnings.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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