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Is a Beat in the Cards for Capital One (COF) in Q2 Earnings?

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Capital One (COF - Free Report) is scheduled to announce second-quarter 2021 results on Jul 22, after market close. Both earnings and revenues are expected to have witnessed a rise in the to-be-reported quarter on a year-over-year basis.

In the last reported quarter, the company’s earnings outpaced the Zacks Consensus Estimate. Results reflected an improvement in non-interest income and stable expenses, partly offset by lower net interest income. Provision benefits, mainly due to reserve releases during the quarter, acted as a tailwind.

Capital One has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with the average beat being 69.79%.

The Zacks Consensus Estimate for earnings of $4.70 for the to-be-reported quarter has been revised 3.5% upward over the past seven days. The figure indicates a surge of 391.9% from the prior-year quarter’s reported number.

The consensus estimate for sales is pegged at $7.03 billion, suggesting year-over-year growth of 7.3%.


Key Factors at Play

Net interest income (NII): During the second quarter, the overall demand for consumer loans improved as the economy re-opened and consumer confidence increased. The Zacks Consensus Estimate for total average earning assets of $392.4 billion indicates nearly 1% rise from the prior quarter’s reported figure.

Capital One’s efforts to strengthen its card operations are expected to have provided further support to loan growth. Yet, because of the near-zero interest rate environment and flattening of the yield curve, the company’s NII is likely to have been adversely impacted. The consensus estimate for NII of $5.8 billion indicates a 1.2% fall sequentially.

Fee income: Card usage increased to some extent as consumer confidence improved during the quarter. The consensus estimate for Capital One’s total credit card purchase volumes of $108.9 million implies a modest increase. This is likely to have offered some support to the company’s interchange fee (constituting more than 60% of fee income). The Zacks Consensus Estimate for the same is $814 million, indicating a slight fall from the prior quarter’s reported number.

The consensus estimate for service charges and other customer-related fees (constituting more than 20% of fee income) of $336 million suggests a 4.5% decline.

The consensus estimate for total non-interest income of $1.34 billion suggests a rise of 3.4% from the prior quarter.

Expenses: Capital One has been witnessing a persistent rise in expenses over the past several years because of higher marketing costs. Despite the company’s investment in technology upgrades, overall costs are expected to have remained manageable in the second quarter.

Asset Quality: Driven by improving macroeconomic backdrop and stable credit market conditions, Capital One is likely to have released reserves in the second quarter. This might have supported the company’s earnings in the to-be-reported quarter.

The Zacks Consensus Estimate for net charge-offs is pegged at $857 million, indicating an increase of 15.8% sequentially.

Earnings Whispers

Our proven model predicts an earnings beat for Capital One this time around. The combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — increases the odds of an earnings beat. This is the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Capital One is +2.07%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Finance Stocks That Warrant a Look

Here are some other finance stocks that you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases.

BankUnited (BKU - Free Report) is scheduled to release earnings on Jul 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +3.07%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank OZK (OZK - Free Report) is slated to report quarterly results on Jul 22. The company currently has an Earnings ESP of +7.68% and a Zacks Rank of 2.

Huntington Bancshares (HBAN - Free Report) is slated to report quarterly results on Jul 29. The company has an Earnings ESP of +1.42% and a Zacks Rank of 3, currently.

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