We expect Capital One Financial Corporation COF to beat earnings expectations when it reports third-quarter 2015 results on Oct 22, after the market closes.
Why a Likely Positive Surprise?
Our proven model shows that Capital One is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.08% for Capital One. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.
Zacks Rank: Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings. The combination of Capital One’s Zacks Rank #3 and ESP of +2.08% makes us confident of an earnings beat.
Factors Influencing Q3
Growth in domestic Card loan will continue to ease pressure on revenues. Further, steady improvement in commercial loans is projected. Therefore, these, along with growth in the overall economy, will help revenues trend upward, despite a low interest rate environment.
However, management projected pressure on revenues due to continued runoffs in home loans and sluggish auto loan growth. Also, provision for credit losses are anticipated to rise as the company’s credit quality will remain under pressure, with a consistent increase in loans.
Further, as management predicts an increase in marketing expenses due to loan growth and development opportunities, operating expenses would rise during the quarter. Also, a slight rise in non-recurring charges pertaining to workforce restructuring is expected in the quarter.
Capital One’s activities during the quarter were inadequate to win analysts’ confidence. Hence, the Zacks Consensus Estimate remained stable at $1.92 per share over the last 7 days.
Other Stocks That Warrant a Look
Capital One is not the only firm looking up this earnings season. We also expect earnings beats from other finance companies as well:
UMB Financial Corporation UMBF has an Earnings ESP of +1.49% and a Zacks Rank #3. It will report results on Oct 27.
EverBank Financial Corp. EVER, with an Earnings ESP of +2.78% and a Zacks Rank #3, is scheduled to report results on Oct 28.
The Earnings ESP for Ally Financial Inc. ALLY is +1.92% and it has a Zacks Rank #2. The company is slated to release results on Oct 29.
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