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Capital One (COF) Q4 Earnings: Will the Stock Disappoint?
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Capital One Financial Corporation (COF - Free Report) is scheduled to report fourth-quarter and 2016 results on Jan 24, after the market closes.
Last quarter, improved revenue growth aided Capital One to outpace the Zacks Consensus Estimate. However, higher expenses and provisions were the headwinds.
The better-than-expected results translated into improved price performance. Further, the Trump rally aided the rise. For the three-months ended Dec 31, 2016, Capital One’s shares jumped almost 21%.
However, for the fourth quarter, the stock witness four downward revisions in earnings estimates (versus two upward revisions), over the last 30 days. Also, the Zacks Consensus Estimate of $1.60 reflects year-over year-decline of 4.4%.
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 fourth 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 -1.88%. This is because the Most Accurate estimate of $1.57 is below the Zacks Consensus Estimate of $1.60.
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 Q4 Results
Mounting Expenses: With management optimizing branch network, expenses related to the same are expected to be $160 million. Around $106 million of this cost was incurred by the end of third-quarter 2016, with remaining to be incurred in the to-be-reported quarter. So, branch optimization costs should lead to a rise in expenses in the quarter.
Further, the company expects the net impact of FDIC surcharges and premium changes to raise the quarterly operating costs by nearly $20 million. Also, operating expenses should go up due to an increase in marketing expenses and continued investments in franchise. The quarter is likely to witness significant seasonal increase in non-interest expenses.
Credit Costs Likely to Rise: Provision for credit losses are likely to rise as Capital One’s credit quality will remain under pressure, given the consistent increase in card and auto loans. Further, taxi medallion and energy portfolio (in spite of a gradual recovery in oil prices) are expected to witness a decline.
Improvement in Revenues: Capital One’s top line should benefit from growth in auto, cards and commercial loans. Further, the acquisition of GE Capital’s healthcare finance operation will continue to support revenues, while continued mortgage run-off should put pressure on top line to some extent.
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:
Raymond James Financial, Inc. (RJF - Free Report) has an Earnings ESP of +1.00% and carries a Zacks Rank #2. The company is slated to release results on Jan 25.
T. Rowe Price Group, Inc. (TROW - Free Report) has an Earnings ESP of +2.16% and carries a Zacks Rank #3. It is scheduled to report results on Jan 26.
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Capital One (COF) Q4 Earnings: Will the Stock Disappoint?
Capital One Financial Corporation (COF - Free Report) is scheduled to report fourth-quarter and 2016 results on Jan 24, after the market closes.
Last quarter, improved revenue growth aided Capital One to outpace the Zacks Consensus Estimate. However, higher expenses and provisions were the headwinds.
The better-than-expected results translated into improved price performance. Further, the Trump rally aided the rise. For the three-months ended Dec 31, 2016, Capital One’s shares jumped almost 21%.
However, for the fourth quarter, the stock witness four downward revisions in earnings estimates (versus two upward revisions), over the last 30 days. Also, the Zacks Consensus Estimate of $1.60 reflects year-over year-decline of 4.4%.
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 fourth 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 -1.88%. This is because the Most Accurate estimate of $1.57 is below the Zacks Consensus Estimate of $1.60.
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 Q4 Results
Mounting Expenses: With management optimizing branch network, expenses related to the same are expected to be $160 million. Around $106 million of this cost was incurred by the end of third-quarter 2016, with remaining to be incurred in the to-be-reported quarter. So, branch optimization costs should lead to a rise in expenses in the quarter.
Further, the company expects the net impact of FDIC surcharges and premium changes to raise the quarterly operating costs by nearly $20 million. Also, operating expenses should go up due to an increase in marketing expenses and continued investments in franchise. The quarter is likely to witness significant seasonal increase in non-interest expenses.
Credit Costs Likely to Rise: Provision for credit losses are likely to rise as Capital One’s credit quality will remain under pressure, given the consistent increase in card and auto loans. Further, taxi medallion and energy portfolio (in spite of a gradual recovery in oil prices) are expected to witness a decline.
Improvement in Revenues: Capital One’s top line should benefit from growth in auto, cards and commercial loans. Further, the acquisition of GE Capital’s healthcare finance operation will continue to support revenues, while continued mortgage run-off should put pressure on top line to some extent.
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:
SEI Investments Co. (SEIC - Free Report) is scheduled to report results on Jan 25. The company has an Earnings ESP of +6.00% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Raymond James Financial, Inc. (RJF - Free Report) has an Earnings ESP of +1.00% and carries a Zacks Rank #2. The company is slated to release results on Jan 25.
T. Rowe Price Group, Inc. (TROW - Free Report) has an Earnings ESP of +2.16% and carries a Zacks Rank #3. It is scheduled to report results on Jan 26.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>