Capital One (NYSE: COF) is scheduled to report its fiscal Q4 2022 results on Tuesday, January 24, 2023. We expect Capital One to beat the consensus estimates of earnings but revenues will marginally miss (in line) the expectations. The company posted mixed results in the last quarter, with earnings missing the mark. It reported total revenues of $8.8 billion – up 12% y-o-y, driven by a 14% growth in the net interest income (NII) and an 8% rise in noninterest revenues. The NII mainly benefited from improvement in the average loan balances and higher net interest margins. Similarly, the noninterest revenues benefited from an increase in credit card purchase volumes. We expect the same trend to continue in the fourth quarter.
Our forecast indicates that Capital One’s valuation is $124 per share, which is 22% above the current market price of $102. Our interactive dashboard analysis on Capital One’s Earnings Preview has more details.
(1) Revenues expected to be marginally below the consensus estimates
Capital One’s revenues grew 13% y-o-y to $25.2 billion in the first three quarters of 2022. It was due to a 12% increase in the NII and a 15% rise in the noninterest revenues.
- The NII increased 12% y-o-y over the first nine months of 2022 because of higher net interest margin and loan growth, especially in the credit card division. Notably, the net interest margin was up due to the interest rate hike by the Fed. We expect the same momentum to follow in Q4.
- The noninterest revenues grew 15% y-o-y over the first three quarters. It was primarily because of higher net interchange fees, which benefited from higher card purchase volume. We expect the same trend to continue in Q4.
- Overall, we estimate Capital One’s revenues to touch $34.2 billion for FY2022.
Trefis estimates Capital One’s fiscal Q4 2022 revenues to be around $9.02 billion, just below (in line) the $9.06 billion consensus estimate.
(2) EPS is likely to beat the consensus estimates
Capital One Q4 2022 adjusted earnings per share (EPS) is expected to be $4.46 per Trefis analysis, comfortably beating the consensus estimate of $3.85. The adjusted net income decreased 39% y-o-y to $5.9 billion in the first nine months of 2022. It was partly due to a significant jump in provisions for credit losses and partly due to higher noninterest expenses. However, we expect the net interest margin to see some improvement in the fourth-quarter results. Overall, Capital One is likely to report an annual GAAP EPS of $19.25 for the full-year 2022.
(3) Stock price estimate is 22% higher than the current market price
We arrive at Capital One’s valuation, using an EPS estimate of around $19.25 and a P/E multiple of just above 6x in fiscal 2022. This translates into a price of $124, which is 22% above the current market price of around $102.
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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