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Consumer Loan Stocks' Q4 Earnings on Jan 24: COF, DFS, NAVI

With fourth-quarter 2016 earnings in full swing, investors are keeping a close eye on the performance of the companies. Several companies have come up with better-than-expected results amid an improving environment with stabilizing oil prices and continued recovery of the U.S. economy.

Underlying loan demand remained healthy during the fourth quarter, with overall moderate growth in loans including commercial and industrial and commercial real estate loans.

Also, demand for several consumer categories including card, auto as well as student loans remained decent. The improving housing sector, declining unemployment and low default rates should have aided performance of consumer finance companies.

Per our latest Earnings Preview article, overall earnings for the Finance sector in the fourth quarter are expected to be up 20.1% year over year. Also, revenues are expected to increase 2.1%. Notably, during the third quarter, the sector witnessed a 12.3% increase in earnings while revenues improved 4.9%.

Our quantitative model offers some insights into stocks that are about to report their earnings. Per the model, in order to be confident of an earnings beat, a stock needs to have the right combination of the two key criteria, a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Earnings ESP .

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage of difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Let's have a look at what's in store for the following firms, releasing their fourth-quarter results on Jan 24.

Navient CorporationNAVI : Quarterly results of Navient, which services over $300 billion in student loans for more than 12 million customers, should benefit from continued new acquisitions of student loan portfolios, both Federally Guaranteed Student Loans (FFELP) as well as Private Education Loan. Also, the company's efforts to grow asset recovery revenues should boost the top line to some extent.

Notably, the company is expected to incur an additional $7 million of one-time operating expenses in the quarter due to shift of $2.7 billion FFELP loans to its servicing platform. (Read more: Navient to Report Q4 Earnings: What's in the Cards? )

However , with a Zacks Rank #4 (Sell) and Earnings ESP of -2.27%, the chances of Navient beating the Zacks Consensus Estimate this time around are quite low. Notably, the Zacks Consensus Estimate of 44 cents reflects a year-over-year decline of 9%.

The company has reported an average negative earnings surprise of 0.5%, over the trailing four quarters.

Discover Financial ServicesDFS : With a Zacks Rank #3 and Earnings ESP of +0.43%, the chances of Discover Financial beating the Zacks Consensus Estimate this time are high. Notably, the Zacks Consensus Estimate of $1.38 reflects a year-over-year increase of 21.2%.

(You can see the complete list of today's Zacks #1 Rank stocks here .)

The Riverwoods, IL-based company is expected to witness continued loan growth. Card sales volume should trend higher owing to improved consumer spending and wallet share and new card account. Also, the company's growing student loan and personal loan portfolios strengthen its line of banking products.

However, results may reflect impact from higher credit card rewards rate and increased credit loss reserve. (Read more: Will Discover Financial Stock Rally Post Q4 Earnings? )

Capital One Financial CorporationCOF : The McLean, VA- based company is expected to witness a rise in top line driven by continued loan growth while continued mortgage run-off should put pressure. The quarter is likely to witness significant seasonal increase in non-interest expenses. (Read more: Capital One Q4 Earnings: Will the Stock Disappoint? )

The Zacks Consensus Estimate of $1.60 reflects a year-over-year decline of 4.4%. Also, we are not confident of an earnings beat as the company has a Zacks Rank #3, with an Earnings ESP of -1.88%.

Notably, the company has reported a positive earnings surprise in two of the trailing four quarters.

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Discover Financial Services (DFS): Free Stock Analysis Report

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

Navient Corp. (NAVI): 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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