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NII & Fee Income to Support COF's Q1 Earnings Amid Rising Provisions
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Capital One (COF - Free Report) is slated to report first-quarter 2025 results on April 22, after market close. Its quarterly earnings and revenues are expected to have witnessed an increase on a year-over-year basis.
In the last reported quarter, COF’s earnings surpassed the Zacks Consensus Estimate. The results gained from higher net interest income (NII) and non-interest income, and a rise in loans and deposits. Also, provisions declined during the quarter. However, the increase in expenses was the undermining factor.
Capital One has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two quarters and lagged in the other two of the trailing four quarters.
Capital One Financial Corporation Price and EPS Surprise
NII: The Federal Reserve kept interest rates unchanged at 4.25%-4.5% on account of persistent inflation and concerns regarding tariff policies. This is likely to have positively impacted COF’s NII during the quarter. Further, the yield curve steepened during the quarter. This is likely to have increased investment yields on interest-earning assets, partially offset by higher funding costs.
The overall lending scenario improved during the quarter, with a rising demand for consumer loans. The Zacks Consensus Estimate for total average earning assets of $461 billion indicates a 3% rise from the prior-year quarter’s reported figure. Our estimate for the metric is $451.3 billion.
Also, Capital One’s efforts to strengthen its card operations are expected to have provided some support. The consensus estimate for NII of $8.02 billion indicates 7.1% growth. Our estimate for NII is pegged at $7.88 billion.
Fee income: Capital One’s interchange fees (constituting more than 60% of fee income) are likely to have improved in the quarter under review, given increased card usage. The Zacks Consensus Estimate for interchange fees is $1.22 billion, suggesting a 6.9% year-over-year increase. Our estimate for the metric is $1.24 billion.
The consensus estimate for service charges and other customer-related fees of $494.1 million implies 6.9% growth. The Zacks Consensus Estimate for other non-interest income is pegged at $278.2 million, indicating a 9.4% year-over-year decline. Our estimates for service charges and other customer-related fees, and other non-interest income are $471.8 million and $305.3 million, respectively.
The consensus estimate for total non-interest income of $2 billion suggests a rise of 4.7% from the prior-year quarter. We expect the metric to be $2.02 billion.
Expenses: Capital One has been witnessing a persistent rise in expenses over the past several quarters because of higher marketing costs. The company’s investment in technology upgrades leads to higher costs. These, along with inflation pressure, are expected to have resulted in an increase in operating expenses in the first quarter.
Also, the pending acquisition of Discover Financial Services (DFS - Free Report) is expected to have resulted in some merger-related charges in the to-be-reported quarter.
Our estimate for total non-interest expenses stands at $5.40 billion, implying a year-over-year rise of 5.2%.
Asset Quality: Capital One is expected to have set aside a decent amount for potential bad loans on account of a higher for longer interest rate backdrop, inflationary pressure and recessionary fears.
Our estimate for provision for credit losses is pegged at $2.6 billion, indicating a 3.2% fall from the year-ago quarter.
Major Developments for COF in Q1
Capital One and Discover Financial Services announced that the shareholders of each entity have approved the proposed acquisition.
The extended completion date of the merger is May 19, 2025.
The deal is still subject to the fulfillment of customary closing conditions, including approval by the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency.
Under the terms of the agreement, Discover Financial shareholders will receive 1.0192 Capital One shares for each Discover Financial share.
Following the closure, Capital One shareholders will own almost 60%, and Discover Financial shareholders will own nearly 40% of the combined company. Further, three members from Discover Financial’s board of directors will join Capital One.
Earnings Whispers for Capital One
According to our quantitative model, the chances of Capital One beating the Zacks Consensus Estimate for earnings this time are low. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
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 -2.23%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for earnings of $3.75 has been revised marginally downward over the past seven days. The figure indicates growth of 16.8% from the prior-year quarter. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
The consensus estimate for sales is pegged at $10.03 billion, suggesting an increase of 6.7%.
Finance Stocks That Warrant a Look
Here are a couple of 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 this time:
STT’s quarterly earnings estimates have been revised marginally downward to $1.98 per share over the past week.
The Earnings ESP for East West Bancorp (EWBC - Free Report) is +0.69% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2025 results on April 22.
Over the past seven days, the Zacks Consensus Estimate for EWBC’s quarterly earnings has remained unchanged at $2.05 per share.
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NII & Fee Income to Support COF's Q1 Earnings Amid Rising Provisions
Capital One (COF - Free Report) is slated to report first-quarter 2025 results on April 22, after market close. Its quarterly earnings and revenues are expected to have witnessed an increase on a year-over-year basis.
In the last reported quarter, COF’s earnings surpassed the Zacks Consensus Estimate. The results gained from higher net interest income (NII) and non-interest income, and a rise in loans and deposits. Also, provisions declined during the quarter. However, the increase in expenses was the undermining factor.
Capital One has a decent earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in two quarters and lagged in the other two of the trailing four quarters.
Capital One Financial Corporation Price and EPS Surprise
Capital One Financial Corporation price-eps-surprise | Capital One Financial Corporation Quote
Key Factors Driving COF’s Q1 Performance & Estimates
NII: The Federal Reserve kept interest rates unchanged at 4.25%-4.5% on account of persistent inflation and concerns regarding tariff policies. This is likely to have positively impacted COF’s NII during the quarter. Further, the yield curve steepened during the quarter. This is likely to have increased investment yields on interest-earning assets, partially offset by higher funding costs.
The overall lending scenario improved during the quarter, with a rising demand for consumer loans. The Zacks Consensus Estimate for total average earning assets of $461 billion indicates a 3% rise from the prior-year quarter’s reported figure. Our estimate for the metric is $451.3 billion.
Also, Capital One’s efforts to strengthen its card operations are expected to have provided some support. The consensus estimate for NII of $8.02 billion indicates 7.1% growth. Our estimate for NII is pegged at $7.88 billion.
Fee income: Capital One’s interchange fees (constituting more than 60% of fee income) are likely to have improved in the quarter under review, given increased card usage. The Zacks Consensus Estimate for interchange fees is $1.22 billion, suggesting a 6.9% year-over-year increase. Our estimate for the metric is $1.24 billion.
The consensus estimate for service charges and other customer-related fees of $494.1 million implies 6.9% growth. The Zacks Consensus Estimate for other non-interest income is pegged at $278.2 million, indicating a 9.4% year-over-year decline. Our estimates for service charges and other customer-related fees, and other non-interest income are $471.8 million and $305.3 million, respectively.
The consensus estimate for total non-interest income of $2 billion suggests a rise of 4.7% from the prior-year quarter. We expect the metric to be $2.02 billion.
Expenses: Capital One has been witnessing a persistent rise in expenses over the past several quarters because of higher marketing costs. The company’s investment in technology upgrades leads to higher costs. These, along with inflation pressure, are expected to have resulted in an increase in operating expenses in the first quarter.
Also, the pending acquisition of Discover Financial Services (DFS - Free Report) is expected to have resulted in some merger-related charges in the to-be-reported quarter.
Our estimate for total non-interest expenses stands at $5.40 billion, implying a year-over-year rise of 5.2%.
Asset Quality: Capital One is expected to have set aside a decent amount for potential bad loans on account of a higher for longer interest rate backdrop, inflationary pressure and recessionary fears.
Our estimate for provision for credit losses is pegged at $2.6 billion, indicating a 3.2% fall from the year-ago quarter.
Major Developments for COF in Q1
Capital One and Discover Financial Services announced that the shareholders of each entity have approved the proposed acquisition.
The extended completion date of the merger is May 19, 2025.
The deal is still subject to the fulfillment of customary closing conditions, including approval by the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency.
Under the terms of the agreement, Discover Financial shareholders will receive 1.0192 Capital One shares for each Discover Financial share.
Following the closure, Capital One shareholders will own almost 60%, and Discover Financial shareholders will own nearly 40% of the combined company. Further, three members from Discover Financial’s board of directors will join Capital One.
Earnings Whispers for Capital One
According to our quantitative model, the chances of Capital One beating the Zacks Consensus Estimate for earnings this time are low. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
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 -2.23%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for earnings of $3.75 has been revised marginally downward over the past seven days. The figure indicates growth of 16.8% from the prior-year quarter. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
The consensus estimate for sales is pegged at $10.03 billion, suggesting an increase of 6.7%.
Finance Stocks That Warrant a Look
Here are a couple of 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 this time:
State Street (STT - Free Report) is scheduled to release first-quarter 2025 numbers on April 17. The company carries a Zacks Rank #3 at present and has an Earnings ESP of +1.21%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
STT’s quarterly earnings estimates have been revised marginally downward to $1.98 per share over the past week.
The Earnings ESP for East West Bancorp (EWBC - Free Report) is +0.69% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2025 results on April 22.
Over the past seven days, the Zacks Consensus Estimate for EWBC’s quarterly earnings has remained unchanged at $2.05 per share.