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Loan Growth, Fee Income to Aid Capital One (COF) Q3 Earnings

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Capital One (COF - Free Report) is slated to release third-quarter 2018 results on Oct 23, after market close. Its earnings are projected to grow year over year, while revenues will likely record a marginal fall.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from rise in revenues, stable expenses and lower provisions. However, a sequential fall in loans and deposits was the undermining factor.

Capital One has an impressive earnings surprise history. Its earnings have surpassed estimates in three of the trailing four quarters with an average positive surprise of 9.5%.

Also, the company’s activities in the third quarter were able to impressive the analysts. As a result, the Zacks Consensus Estimate for earnings of $2.89 moved nearly 1.4% upward over the past 30 days. The figure represents year-over-year growth of 19.4%.

However, the consensus estimate for revenues of $6.85 billion reflects a fall of 1.9% from the prior-year quarter.

Factors to Influence Results

Marginal improvement in net interest income (NII): Per the Fed’s latest data, consumer loans recorded a slight improvement. This along with Capital One’s efforts to further strengthen its card operations and higher interest rates will support NII to some extent. However, the flattening of the yield curve and higher deposit betas arelikely to slightly hamper growth.

Modest fee income growth: Capital One is expected to record an increase in fee income in the to-be-reported quarter. As the quarter is likely to show increased card usage, interchange fees (major part of its fee income) are expected to rise.

Modest increase in expenses: Similar to first-half 2018, operating expenses are expected to trend upward in the to-be-reported quarter. Specifically, marketing expenses will likely remain elevated with rising loan growth opportunities.

Asset quality to worsen: While improvement in card loans is leading to an increase in interest income, Capital One will continue witnessing a rise in credit card delinquency rates. Also, the charge-off rate in auto finance business will likely increase.

Now, let’s have a look at what our quantitative model predicts:

We cannot conclusively predict whether Capital One will be able to beat the Zacks Consensus Estimate in the third quarter. 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 — for increasing 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 0.00%.

Zacks Rank: Capital One currently has a Zacks Rank #3. This increases the predictive power of ESP but we need to have positive ESP to be sure of an earnings beat.

Stocks That Warrant a Look

Here are a few finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release.

Ameriprise Financial, Inc. (AMP - Free Report) is slated to release results on Oct 23. It has an Earnings ESP of +4.30% and a Zacks Rank #2 (Buy).

SVB Financial Group (SIVB - Free Report) is slated to report third-quarter 2018 results on Oct 25. It has an Earnings ESP of +1.22% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cullen/Frost Bankers (CFR - Free Report) is also slated to release results on Oct 25. It has an Earnings ESP of +0.07% and carries a Zacks Rank #3.

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