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Will Slower Loan Growth Hurt Capital One (COF) Q1 Earnings?

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Capital One Financial Corporation (COF - Free Report) is scheduled to report first-quarter 2017 results on Apr 25, after the market closes.

Last quarter, a fall in non-interest income, an increase in provisions and rising expenses led Capital One to lag the Zacks Consensus Estimate. However, higher net interest income and easing margin pressure supported the results to some extent.

This disappointing performance along with uncertainty related to policy changes as promised by Donald Trump led to a decline in the company’s stock. For the three-months ended Mar 31, 2017, Capital One’s shares fell 2.5%.

Moreover, for the first quarter, the stock witness two downward revisions in earnings estimates (versus no upward revision), over the last 30 days. Further, the company doesn’t have an impressive earnings surprise history, as evident from the chart below:

Earnings Whispers

Our quantitative model does not predict an earnings beat. Here is what our model indicates:

Chances of Capital One beating the Zacks Consensus Estimate in the first quarter are quite low. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for Capital One is -7.25%. This is because the Most Accurate estimate of $1.79 is below the Zacks Consensus Estimate of $1.93.

Zacks Rank: Capital One’s Zacks Rank #3 increases the predictive power of the ESP. However, we need to have a positive ESP to be sure of an earnings beat.

Factors to Impact Q1 Results

Slowdown in Loan Growth Should Hurt Revenues: Significant slowdown in auto, cards and commercial loans during the quarter must have led to a fall in Capital One’s net interest income (NII). Nonetheless, higher interest rates and synergies from the acquisition of GE Capital’s healthcare finance operation should have supported NII to some extent.

Expenses to Remain Stable: With the completion of the branch network optimization plan, Capital One should record a fall in operating expenses during the quarter. However, an increase in marketing expenses is expected. Hence, expenses must have been relatively stable during the first quarter.

Lower Credit Costs Likely to Support Results: Provision for credit losses are likely to remain stable or decline marginally for Capital One as the loan growth slowed down during the quarter.

Stocks that Warrant a Look

Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Ameriprise Financial, Inc. (AMP - Free Report) is scheduled to release results on Apr 24. It has an Earnings ESP of +0.40% and carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zions Bancorporation (ZION - Free Report) has an Earnings ESP of +1.85% and carries a Zacks Rank #3. The company is also slated to release results on Apr 24.

Lazard Ltd (LAZ - Free Report) is scheduled to release results on Apr 27. It has an Earnings ESP of +6.41% and carries a Zacks Rank #2.

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