Capital One Earnings Preview: Will Capital One Miss FY 2019 Revenues Expectations?

by Trefis Team
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Capital One (NYSE: COF) will release its Q4 and full-year 2019 results on Tuesday, January 21. Trefis details expectations from the credit card giant in an interactive dashboard, parts of which we highlight below. We believe that Capital One will likely report an earnings beat for FY19, although its revenues would miss consensus. We expect the bank’s revenues to increase to $28.2 billion for the year from $27.8 billion in 2018, primarily due to growth in credit card fees and higher net interest yield on consumer loans. However, our estimate is slightly lower than the consensus estimate of $28.6 billion. On the other hand, the EPS figure is likely to reduce to $11.09, primarily due to weak growth in revenues and higher expenses weighing on the net income margin. This estimate is marginally higher than the consensus EPS estimate of $11.08. Further, we believe that weaker-than-expected revenues for FY 2019 will overshadow the earnings beat, resulting in a slight negative movement in Capital One’s stock price once it announces earnings. Our forecast indicates that Capital One’s valuation is $103 a share, which is slightly higher than the current price.

Trefis shines the spotlight on key assumptions and data for Capital One, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Capital One’s FY19 earnings in our interactive dashboard.

 

(1) Capital One’s revenues would have increased 1.6% to $28.2 billion in 2019; slightly below consensus estimates

  • Trefis estimates Capital One’s 2019 revenues to be $28.2 billion, 1% below the consensus estimate of $28.6 billion.
  • Capital One has added $2.4 billion to its revenue over the last two years, with total revenues increasing by 6.7% y-o-y in 2017, before slowing down to 2.7% in 2018.
  • We expect revenues to have increased by 3.3% to reach $28.2 billion in 2019.
  • While Credit Card revenues have grown at an average annual rate of 5.1% over the last two years (from $16 billion in 2016 to $17.7 billion in 2018), the growth rate would have reduced in 2019 due to slower growth in net interest income from credit card loans. We expect the segment’s revenues to have increased by 2.6% in 2019, driven by higher fees income from credit card transactions.
  • Consumer Loans segment has contributed more than 25% of Capital One’s revenues over the last three years and is expected to cross $7.3 billion in 2019. Although lower consumer activity levels would have reduced the average outstanding consumer loans, slight growth in Net Interest Income would support the segment revenues.
  • Notably, we expect Capital One to report $29.7 billion in revenues for 2020.

Our interactive dashboard analysis, ‘How Does Capital One Make Money?’, provides an in-depth view of the company’s revenues along with our forecasts for 2020.

 

(2) EPS is likely to drop 6.2% from $11.82 in 2018 to $11.09 in 2019, which is marginally above consensus estimates

  • We expect Capital One’s 2019 earnings per share (EPS) to be $11.09 per Trefis analysis, slightly higher than the consensus estimate of $11.08 per share
  • A 4.2% increase in expenses will reduce the EPS figure despite a slight growth in revenues and a 2.3% decline in Shares Outstanding.
  • As we forecast Capital One’s Revenues to grow at a slower rate as compared to Expenses in 2019 (1.6% vs. 4.2%), this will result in a 201 bps decrease in Capital One’s Net Income Margin figure from 20.5% in 2018 to 18.5% in 2019.
  • For 2020, we believe that a similar increase in expenses and revenues will result in the net income margin figure maintaining the 2019 level of 18.5%.

(3) Stock price estimate is slightly higher than the market price

  • A trailing P/E multiple of 9.3x looks appropriate for Capital One’s stock, which is marginally higher than the current implied P/E multiple of 9.2x.
  • Trefis’ forecast for Capital One’s 2019 earnings, as well as P/E multiple, are higher than the market expectations, working out to a fair value of $103 for Capital One’s stock, which is slightly higher than the current market price of around $102.

 

See all Trefis Price Estimates and Download Trefis Data here

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