Capital One COF is scheduled to report second-quarter 2023 results on Jul 20, 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 missed the Zacks Consensus Estimate. Results were affected by higher provisions for credit losses and an increase in operating expenses. Yet, a decent loan balance and higher interest rates aided net interest income (NII).
Capital One does not have an impressive earnings surprise history. Its earnings lagged the Zacks Consensus Estimate in the trailing four quarters.
Key Factors & Estimates for Q2
Net interest income: In the second quarter, lending activities gradually waned on higher rates and a challenging macroeconomic backdrop. Nevertheless, the Zacks Consensus Estimate for COF’s second-quarter total average earning assets of $437 billion indicates a 9.5% rise from the prior-year quarter’s reported figure.
Also, Capital One’s efforts to strengthen its card operations are expected to have provided some support. This, along with higher interest rates, is expected to have positively impacted NII. The consensus estimate for NII of $7.31 billion indicates a 12.1% year-over-year improvement. Our estimate for NII is pinned at $7 billion, suggesting an increase of 7.3%.
Fee income: Capital One’s interchange fees (constituting more than 60% of fee income) are likely to have improved in the quarter. The Zacks Consensus Estimate for the same is $1.24 billion, indicating a 3% rise from the prior-year quarter’s reported figure.
The consensus estimate for service charges and other customer-related fees of $417 million implies a marginal increase. The Zacks Consensus Estimate for other non-interest income is pegged at $202 million, indicating a significant year-over-year rise. Our estimates for service charges and other customer-related fees, and other non-interest income are $423.3 million and $207.9 million, respectively.
The consensus estimate for total non-interest income of $1.84 billion suggests a rise of 7.3% from the prior-year quarter’s reported figure. We expect the metric to grow 2.1% to $1.75 billion.
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 inflation issues, are expected to have led to an increase in operating expenses in the second quarter.
Our estimate for total non-interest expenses is pinned at $4.84 billion, implying a year-over-year increase of 5.6%.
Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns, and tighter financial conditions, Capital One is likely to have built reserves in the second quarter.
Our estimate for provision for credit losses is pegged at $2.31 billion, indicating a significant rise from the year-ago quarter figure.
Key Development in the Quarter
In June, Capital One acquired Velocity Black, the leading digital concierge company.
Velocity’s platform uses artificial intelligence and human experts to recommend and fulfill travel, entertainment, shopping and dining offerings to consumers around the globe.
Now, the companies will focus on finding new approaches to solve consumer problems. Velocity Black's advanced technology will strengthen Capital One's delivery of exceptional experiences for consumers.
Earnings Whispers
According to our quantitative model, the chances of Capital One beating the Zacks Consensus Estimate this time are high. This is because it has 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 +1.32%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for Capital One’s second-quarter earnings of $3.37 has been revised marginally higher over the past seven days. The figure indicates a plunge of 32.1% from the prior-year quarter’s reported number. Our estimate for earnings is $3.22 per share.
Capital One Financial Corporation Price and EPS Surprise
Capital One Financial Corporation price-eps-surprise | Capital One Financial Corporation Quote
The consensus estimate for sales is pegged at $9.14 billion, suggesting a year-over-year increase of 11%. We project the metric to be 8.75 billion, indicating growth of 6.2%.
Other Stocks That Warrant a Look
A couple of other finance stocks that you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this time around, are Wells Fargo WFC and Moody's Corporation MCO.
The Earnings ESP for Wells Fargo is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MCO is scheduled to release quarterly results on Jul 25. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +3.00%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
