Back to top

Image: Bigstock

Capital One (COF) Up 3.4% on Q1 Earnings & Revenue Beat

Read MoreHide Full Article

Shares of Capital One (COF - Free Report) rallied 3.4% following the release of first-quarter 2019 results after the market closed. Adjusted earnings of $2.90 per share easily surpassed the Zacks Consensus Estimate of $2.68. Also, it compared favorably with the year-ago quarter’s adjusted earnings of $2.65.

Results benefited from rise in revenues, improving deposit balances and strength in card business. However, a rise in provision for credit losses, lower loan balances and an increase in operating expenses hurt the results to some extent.

After taking into consideration the non-recurring items, net income available to common shareholders was $1.35 billion or $2.86 per share, up from $1.28 billion or $2.62 per share in the prior-year quarter.

Revenues & Expenses Rise

Net revenues were $7.08 billion, up 3% year over year. The figure beat the Zacks Consensus Estimate of $7.01 billion.

Net interest income inched up 1%to $5.79 billion. However, net interest margin decreased 7 basis points (bps) to 6.86%.

Non-interest income increased 8% year over year to $1.29 billion. The rise was driven by highernet interchange fees, other income and net securities losses, partially offset by decline in service charges and other customer-related fees.

Non-interest expenses of $3.67 billion were up 3%, mainly owing to 25% jump in marketing costs and 39% surge in professional services costs.

Efficiency ratio was 51.83% compared with 51.72% in the year-ago quarter. An increase in efficiency ratio indicates deterioration in profitability.

Loan Decline, Deposit Balances Improve

As of Mar 31, 2019, loans held for investment were $240.3 billion, down 2% from the prior quarter. However, total deposits, as of the same date, increased 2% sequentially to $255.11 billion.

Credit Quality: A Mixed Bag

Net charge-off rate increased 5 bps year over year to 2.64%. Also, provision for credit losses rose 1% to $1.69 billion. Likewise, the 30-plus day performing delinquency rate increased 51 bps year over year to 3.23%.

However, allowance as a percentage of reported loans held for investment was 3.04%, down 1 bp.

Strong Profitability & Capital Ratios

Return on average assets was 1.52% at the end of the reported quarter, up from 1.48% in the year-ago quarter. Also, return on average common equity was 11.13%, down from 11.47% in the prior-year quarter.

As of Mar 31, 2019, Tier 1 risk-based capital ratio was 13.4%, up from 12.0% in the prior-year quarter end. Further, common equity Tier 1 capital ratio under Basel III Standardized Approach was 11.9% as of Mar 31, 2019, up from 10.5% on Mar 31, 2018.

Our Take

Capital One’s strategic acquisitions over the years have positioned it well for long-term growth. Further, steady improvement in card business will likely support profitability. However, increasing expenses pose a concern. Also, asset quality is likely to remain under pressure due to losses in the auto portfolio and U.S. card business.

Capital One Financial Corporation Price, Consensus and EPS Surprise

 

Capital One Financial Corporation Price, Consensus and EPS Surprise | Capital One Financial Corporation Quote

Currently, Capital One carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Release Dates of Other Consumer Loan Stocks

Ally Financial Inc.’s (ALLY - Free Report) first-quarter 2019 adjusted earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 79 cents. Further, the bottom line compared favorably with the prior-year quarter’s figure of 68 cents.

Credit Acceptance Corporation (CACC - Free Report) and Santander Consumer USA Holdings Inc. are slated to announce on Apr 29 and Apr 30, respectively.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Capital One Financial Corporation (COF) - free report >>

Credit Acceptance Corporation (CACC) - free report >>

Ally Financial Inc. (ALLY) - free report >>

Published in