What To Expect From Capital One Stock In Q3?

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Upside
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Trefis
COF: Capital One Financial logo
COF
Capital One Financial

Capital One (NYSE: COF) is scheduled to report its fiscal Q3 2022 results on Thursday, October 27, 2022. We expect Capital One to miss the consensus estimates. The company’s results were lower than the street expectations in Q2, despite a 12% y-o-y increase in revenues. The growth was driven by an increase in net interest income (NII) and higher purchase volume. Notably, the NII benefited from improvements in interest rates and loan growth. That said, the adjusted net income suffered a 43% y-o-y drop in the quarter due to an unfavorable increase in the provisions for credit losses and higher noninterest expenses as a % of revenues. We expect the same trend to continue in the third quarter.

Our forecast indicates that Capital One’s valuation is $142 per share, which is 46% above the current market price of just above $98. Our interactive dashboard analysis on Capital One’s Earnings Preview has more details. 

(1) Revenues expected to be marginally below the consensus estimates

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Capital One’s revenues of $16.4 billion in the first half of 2022 were 13% above the year-ago levels. It was because of a 12% rise in the NII and a 19% increase in the noninterest revenues.

  • The firm derives close to 80% of its total revenues from net interest income. The NII grew 12% y-o-y over the first two quarters driven by higher interest rates and improvement in the outstanding loan balances. We expect the same trend to continue in Q3.
  • The noninterest revenues grew 19% y-o-y to $3.5 billion over the first six months of the year. It was primarily driven by higher credit card purchase volume, resulting in an increase in net interchange fees. We expect the third-quarter results to be on similar lines.
  • Overall, we forecast Capital One’s revenues to touch $33.4 billion for FY2022.

Trefis estimates Capital One’s fiscal Q3 2022 revenues to be around $8.50 billion, just below the $8.59 billion consensus estimate. 

(2) EPS is likely to miss the consensus estimates

Capital One Q3 2022 adjusted earnings per share (EPS) is expected to be $4.95 per Trefis analysis, almost 2% below the consensus estimate of $5.04. The adjusted net income decreased 36% y-o-y to $4.27 billion in the first half of 2022. It was partly due to a build-up in provisions for credit losses and partly due to higher noninterest expenses as a % of revenues. We expect the same trend to drive the third-quarter results. Overall, Capital One is likely to report an annual GAAP EPS of $20.70 for the full-year 2022.

(3) Stock price estimate is 46% higher than the current market price

We arrive at Capital One’s valuation, using an EPS estimate of around $20.70 and a P/E multiple of just below 7x in fiscal 2022. This translates into $142, which is 46% above the current market price of around $98. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 COF Return 6% -33% 12%
 S&P 500 Return 6% -20% 70%
 Trefis Multi-Strategy Portfolio 2% -25% 197%

[1] Month-to-date and year-to-date as of 10/25/2022
[2] Cumulative total returns since the end of 2016

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