We expect Capital One Financial Corporation COF to beat earnings expectations when it reports first-quarter 2015 results on Apr 23 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 +1.06% for Capital One. This is very meaningful and a leading indicator of a likely positive earnings surprise for the company.
Zacks Rank #3: Note that stocks with Zacks Ranks #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 +1.06% makes us confident of an earnings beat. Moreover, Capital One delivered positive earnings surprises in three out of the trailing four quarters, with an average beat of 6.76%.
Factors to Influence Q1 Results
We expect Capital One to reflect sustained loan growth in the quarter, given the consistent improvement in domestic cards and auto loan portfolios. Further, steady growth in commercial loans is expected. Hence, driven by improvement in loan demand, overall revenues are predicted to show an uptrend.
However, the persistent low interest rate environment will likely exert pressure on Capital One’s net interest income. Additionally, we expect provision for credit losses to rise as the company’s credit quality will remain under pressure.
Further, operating expenses would rise during the quarter as management anticipates marketing expenses to increase due to seasonality, loan growth and development opportunities. Nevertheless, we believe the company’s cost-savings efforts will manage to offset the rise to some extent.
Capital One’s activities during the quarter were adequate to win analysts’ confidence. Hence, the Zacks Consensus Estimate increased by a penny to $1.88 per share over the last 7 days.
Other Stocks Worth 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:
The Earnings ESP for The Bank of New York Mellon Corporation BK is +1.70% and it has a Zacks Rank #3. The company is slated to release results on Apr 22.
BankUnited, Inc. BKU, with an Earnings ESP of +2.27% and a Zacks Rank #3, is slated to report results on Apr 23.
State Street Corporation STT has an Earnings ESP of +1.91% and a Zacks Rank #3. It is scheduled to report results on Apr 24.
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