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Capital One (COF) Q4 Earnings: Will the Stock Disappoint?

Capital One Financial CorporationCOF 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 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 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 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 Financial Corp. (COF): Free Stock Analysis Report

Raymond James Financial Inc. (RJF): Free Stock Analysis Report

T. Rowe Price Group Inc. (TROW): Free Stock Analysis Report

SEI Investments Co. (SEIC): Free Stock Analysis Report

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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