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Consumer Loans, Cards to Aid Capital One (COF) Q4 Earnings

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Capital One (COF - Free Report) is slated to report fourth-quarter and full-year 2021 results on Jan 25, after market close. While quarterly earnings are expected to have witnessed a fall on a year-over-year basis, revenues are likely to have risen.

In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate. Results reflected an improvement in net interest income, provision benefit and a solid rise in loan balance. These were partly offset by higher expenses and legal reserve build during the quarter.

Capital One has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat being 61.73%.

The Zacks Consensus Estimate for Capital One’s fourth-quarter earnings of $5.14 has been revised marginally upward over the past seven days. The figure indicates a decline of 2.8% from the prior-year quarter’s reported number. The consensus estimate for sales is pegged at $7.93 billion, suggesting an increase of 8.1%.

Key Factors at Play

Net interest income (NII): During the fourth quarter, demand for consumer loans was robust as the economic growth continued at a solid pace and consumer confidence improved. The Zacks Consensus Estimate for total average earning assets of $391.8 billion indicates a nearly 1% rise from the prior-year quarter’s reported figure.

Capital One’s efforts to strengthen its card operations are expected to have provided further support to loan growth. Yet, the low-interest-rate environment is likely to have somewhat hurt the company’s NII. The consensus estimate for NII of $6.32 billion indicates a 7.6% year-over-year improvement.

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 $141.4 billion implies a 20.7% rise. This is likely to have offered support to the company’s interchange fee (constituting more than 60% of fee income). The Zacks Consensus Estimate for the same is $1.02 billion, indicating 24.7% growth on a year-over-year basis.

The consensus estimate for service charges and other customer-related fees (constituting almost 20% of fee income) of $401 million suggests an 18.6% increase. The Zacks Consensus Estimate for other non-interest income is pegged at $199 million, indicating a fall of 35.4%.

The consensus estimate for total non-interest income of $1.61 billion suggests a rise of 9.8% from the prior-year 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 fourth quarter.

Asset Quality: Driven by improving macroeconomic backdrop and stable credit market conditions, Capital One is likely to have released reserves in the fourth 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 $670 million, indicating a decrease of 21.7% year over year.

Management Outlook for Q4

As a result of the full quarter of recent issuances and a partial quarter of the planned redemptions, the company expects preferred dividends to be around $74 million.

A sequential increase in total marketing costs is expected mainly due to seasonality.

Earnings Whispers

Our proven model does not predict an earnings beat for Capital One this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — that increases the odds of an earnings beat.

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 -1.03%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

Finance Stocks That Warrant a Look

A few finance stocks, which you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Prosperity Bancshares (PB - Free Report) , LendingClub Corporation (LC - Free Report) and Ares Capital Corporation (ARCC - Free Report) .

Prosperity Bancshares is slated to report quarterly earnings on Jan 26. PB, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.55%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LendingClub is also slated to report quarterly earnings on Jan 26. LC, which sports a Zacks Rank #1 at present, has an Earnings ESP of +7.81%.

Ares Capital is slated to report quarterly results on Feb 9. ARCC currently has an Earnings ESP of +11.11% and a Zacks Rank #2.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.