Capital One (COF) Third Quarter Profits to Benefit from Higher Consumer Lending – October 25, 2021

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A capital letter (COF Free Report) is expected to release third quarter 2021 results on October 26, after market closes. Profits and revenues are expected to have seen an increase year over year.

In the last quarter reported, the company’s profits exceeded Zacks’ consensus estimate. The results reflect improved revenues, provisions and a solid increase in loan balances. These were partly offset by higher expenses and the constitution of legal reserves during the quarter.

Capital One has an impressive history of earnings surprises. Its profits have beaten Zacks’ consensus estimate in each of the past four quarters, the average pace being 92.32%.

Zacks’ consensus estimate for Capital One’s third quarter earnings of $ 5.22 has been revised up 5.5% in the past 30 days. The figure indicates an increase of 3.4% from the number reported in the quarter of the previous year. The consensus estimate for revenue is set at $ 7.43 billion, suggesting a marginal increase of 0.7%.

Main factors at play

Net Interest Income (NII): In the third quarter, demand for consumer loans was robust as economic growth continued at a strong pace and consumer confidence improved. Zacks’ consensus estimate for total average earning assets of $ 393.2 billion indicates a marginal increase from the figure reported in the previous year’s quarter.

Capital One’s efforts to strengthen its card operations as well as the steepening of the yield curve should have provided additional support for loan growth. Still, the low interest rate environment is likely to have weighed somewhat on the company’s NII. The consensus estimate of the NII of $ 6 billion indicates a 6.1% improvement year-over-year.

Fee income: 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 $ 129.4 billion implies a 20.9 percent increase. This is likely to have offered support to the company’s interchange commission (constituting over 60% of commission income). Zacks’ consensus estimate for the same is $ 977 million, which indicates 26.1% year-over-year growth.

The consensus estimate for service and other customer-related fees (constituting nearly 20% of fee revenue) of $ 370 million suggests a 15.6% increase. Zacks’ consensus estimate for other non-interest income is set at $ 210 million, which indicates a fall of 70.3%.

The consensus estimate for total non-interest income of $ 1.53 billion suggests a decline of 16.3% from the previous year’s quarter.

Expenses: Capital One has witnessed a persistent increase in spending over the past few years due to higher marketing costs. Despite the company’s investment in technology upgrades, overall costs are expected to remain manageable in the third quarter.

Asset quality: Driven by improving macroeconomic conditions and stable credit market conditions, Capital One is expected to have released reserves in the third quarter. This could have supported the company’s profits in the reportable quarter.

Zacks’ consensus estimate for net charges is set at $ 651 million, which indicates a 39.3% year-over-year decline.

Whispers of gains

Our proven model predicts higher profits for Capital One this time around. This is because it has the right combination of the two key ingredients – a positive payout ESP and a Zacks (Hold) rank 3 or better – which increases the chances of a winning payout.

You can discover the best stocks to buy or sell before they are flagged with our ESP Earnings Filter.

ESP on income: Capital One’s earnings PSE is + 4.66%.

Zack Rank: The company currently carries a Zacks Rank # 2 (Buy).

Other financial stocks worth a look

Here are a few other financial stocks you might want to consider as they have the right mix of elements to show a profit pace in their next releases.

ESP gains for Ameriprise Financial, Inc. (CHA Free Report) is + 1.10% and he currently carries a Zacks Rank # 2. The company is expected to release quarterly figures on October 26.

Prosperity Bancshares, Inc. (PB Free Report) is expected to release its results on October 27. The company, which currently holds a Zacks # 3 rank, has an ESP on earnings of + 0.06%. You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.

Hilltop Holdings Inc. (HTH Free Report) is also expected to release its quarterly results on October 27. The company currently has an ESP on earnings of + 3.31% and a Zacks ranking of 2.

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