What awaits Capital One (COF) this earnings season? – April 25, 2022

Capital one (COF Free Report) is expected to release first quarter 2022 results on April 26, after market close. While quarterly earnings are expected to have fallen year over year, revenues are expected to have increased.

In the last reported quarter, the company’s earnings exceeded Zacks’ consensus estimate. The results reflected an improvement in turnover and a solid increase in loan balances. These were partly offset by higher expenses and an increase in provisions during the quarter.

Capital One has an impressive history of earnings surprises. Its earnings have exceeded the Zacks consensus estimate in each of the past four quarters, the average pace being 41.64%.

Main factors at play

Net interest income (NII): During the first quarter, demand for consumer loans was strong as economic growth continued at a strong pace and consumer confidence improved. The Zacks consensus estimate for total average earning assets of $393.7 billion indicates a 1.3% increase from the reported figure for the prior year quarter.

Capital One’s efforts to strengthen its card operations should have provided additional support for loan growth. Still, the low interest rate environment likely hurt the company’s NII somewhat. The consensus NII estimate of $6.43 billion indicates a 10.5% year-over-year improvement.

Fee receipts: Card usage increased to some extent as consumer confidence improved in the quarter. Capital One’s consensus estimate of total credit card purchase volume of $130.4 billion implies a 20.4% increase. This likely offered support for the company’s interchange fee (making up over 60% of commission revenue). The Zacks consensus estimate for the same is $974, indicating a 19.2% year-over-year growth.

The consensus estimate for service fees and other customer-related fees (constituting nearly 20% of fee revenue) of $374 million suggests a 6.3% increase. Zacks’ consensus estimate for other non-interest income is pegged at $236 million, indicating a 100% jump.

The consensus estimate for total non-interest revenue of $1.6 billion suggests a 23.9% increase over the prior year quarter.

Expenses: Capital One has seen a persistent increase in spending over the past few years due to rising marketing costs. Additionally, the company’s investment in technology upgrades leads to higher costs. These, together with the rise in inflation, should have led to an increase in operating expenses in the first quarter.

Asset quality: With loan balances rising and expectations of an economic slowdown due to geopolitical and inflationary concerns, Capital One is expected to have built up reserves in the first quarter. Thus, the company’s provision for credit losses probably increased during the quarter under review.

The Zacks consensus estimate for net charges is pegged at $809 million, indicating a 9.3% year-over-year increase.

Earnings Whispers

According to our quantitative model, the odds of Capital One beating the Zacks consensus estimate this time around are low. This is because he doesn’t have the right combination of the two key ingredients – a positive earnings ESP and a Zacks rank #3 (Hold) or higher.

You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.

ESP Earnings: The earnings PSE for Capital One is -1.04%.

Zack’s Ranking: The company currently carries a No. 3 Zacks rank.

The Zacks consensus estimate for Capital One’s first quarter earnings of $5.39 has been revised down 1.1% over the past 30 days. The figure indicates a 23.3% drop from the number reported in the prior year quarter.

The consensus sales estimate is set at $8.02 billion, suggesting a 12.7% increase.

Bank stocks worth watching

Here are a few bank stocks you might want to consider, as our model shows they have the right mix of elements to outperform this time around:

Prosperity Bancshares, Inc. (PB Free Report) is set to release its quarterly results on April 27. The company, which currently has a Zacks ranking of 3, has an earnings ESP of +0.50%. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PB’s earnings estimates for the reportable quarter remained unchanged in the 30 days.

Southern State Corporation (SSB Free Report) is expected to release its quarterly results on April 28. The company, which currently holds the No. 2 Zacks ranking (buy), has an EPS on earnings of +1.97%.

SSB’s earnings estimates for the quarter to report moved north 4.8% in the 30 days.

Stay on top of upcoming earnings announcements with Zacks Earnings Calendar.