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Why is Earnings Beat Less Likely for Capital One (COF) in Q2?

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Capital One (COF - Free Report) is slated to report second-quarter 2022 results on Jul 21, 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 benefited from a decent improvement in loan balances, which supported interest income. Higher consumer confidence aided the credit card business and non-interest income. However, an increase in operating expenses was a headwind.

Capital One has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 25.6%.

Key Factors & Estimates for Q2

Net interest income (NII): In the second quarter, the demand for consumer loans was robust and, hence, loan balances increased. The Zacks Consensus Estimate for total average earning assets of $397.6 billion indicates a 1.9% 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. Along with growth in loan balances, higher interest rates (the rate hikes in March, May and June) are expected to have positively impacted the company’s NII. The consensus estimate for NII of $6.5 billion indicates a 13.6% year-over-year improvement.

Fee income: Supported by the rise in card usage, Capital One’s interchange fee (constituting more than 60% of fee income) is likely to have been positively impacted. The Zacks Consensus Estimate for the same is $1.10 billion, indicating 7.9% 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 $395 million suggests a 2.9% increase. The Zacks Consensus Estimate for other non-interest income is pegged at $222 million, indicating a year-over-year fall of 3.9%.

The consensus estimate for total non-interest income of $1.71 billion suggests a rise of 5% from the prior-year quarter’s reported figure.

Expenses: Capital One has been witnessing a persistent rise in expenses over the past several years because of higher marketing costs. The company’s investment in technology upgrades leads to higher costs. These, along with rising inflation, are expected to have resulted in an increase in operating expenses in the second quarter.

Earnings Whispers

According to our quantitative model, the chances of Capital One beating the Zacks Consensus Estimate this time are low. 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 higher.

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 -0.21%.

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

The Zacks Consensus Estimate for Capital One’s second-quarter earnings of $5.10 has been revised marginally lower over the past seven days. The figure indicates a decline of 33.9% from the prior-year quarter’s reported number.

The consensus estimate for sales is pegged at $8.24 billion, suggesting a year-over-year increase of 11.8%.

Stocks That Warrant a Look

A couple of 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 Bank OZK (OZK - Free Report) and Regions Financial (RF - Free Report) .

Bank OZK is scheduled to release second-quarter 2022 earnings on Jul 21. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +2.69%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Regions Financial is +0.89% and it carries a Zacks Rank #3 at present. The company is slated to report results on Jul 22.

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

In-Depth Zacks Research for the Tickers Above

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Regions Financial Corporation (RF) - free report >>

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

Bank OZK (OZK) - free report >>