Market Overview

Capital One Earnings Preview: Q4 EPS Expected to Nearly Double

Capital One Financial (NYSE: COF), which was upgraded earlier this week by Goldman Sachs, is scheduled to report its fourth-quarter and full-year results Thursday, January 17, after the markets close.

Investors will be looking to see what impact the weak holiday shopping season had on the use of Capital One credit cards, as well as any outlook for consumer demand for credit going forward.

Expectations

Analysts on average predict that Capital One will report that revenue surged about 45 percent year-over-year to $5.88 billion. And quarterly earnings of $1.61 per share are also expected. That compares to a profit of $0.88 per share in the same period of last year. But note that the consensus EPS estimate is down in the past 60 days from $1.65. And per-share earnings fell short of the consensus estimate in two of the past five quarters.

The company attributed better-than-expected third-quarter earnings results to "solid results across all of our businesses." And the chief financial officer said: "Given our strong capital trajectory, we expect to exceed an assumed Basel III Tier 1 common ratio target of 8 percent in 2013." The share price jumped almost five percent following that earnings report.

For the full year, however, analysts expect to see earnings of $6.44 per share, which would be down from $6.80 per share in the previous year. But that consensus estimate has risen in the past 60 days from a $6.41 per share. And the consensus forecast also has revenue that is about 32 percent higher year-over-year to $21.50 billion.

The Company

Capital One is a bank holding company that offers various financial products and services in the United States, the United Kingdom and Canada, primarily to consumers, small businesses and commercial clients. This S&P 500 component has a market capitalization near $35.7 billion, was founded in 1993 and is headquartered in McLean, Virginia. Richard D. Fairbank is co-founder, chairman and chief executive.

Competitors include American Express (NYSE: AXP), Bank of America (NYSE: BAC) and Discover Financial (NYSE: DFS). Discover showed earnings growth when it reported in December, but it fell short of the consensus EPS estimate. The American Express and Bank of America are scheduled to report their most recent results on Thursday as well, and analysts expect them to say that EPS declined from the year-ago period.

During the three months that ended in December, Capital One extended its streak of dividends on its common stock in every quarter since it became an independent company in 1995. Also, it was recognized a leading community-minded company and as a military-friendly employer.

Performance

The long-term EPS growth forecast is almost 10 percent, and the price-to-earnings (P/E) ratio is less than the industry average. But the company's return on equity is less than 10 percent. The short interest is less than two percent of the float. Of the 28 analysts surveyed by Thomson/First Call who follow the stock, 21 recommend buying shares -- 13 of them rating the stock as Strong Buy.

Their mean price target, or where they expect the stock to go, represents more than 11 percent potential upside. That would be a level the share price has not seen since 2007.

The share price has risen more than 25 percent in the past year and reached a 52-week high last week. Shares are trading above the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed American Express and the broader markets, but its performance has been in line with Discover Financial.

Posted-In: American Express Bank of America Capital OneEarnings Long Ideas Short Ideas Previews Trading Ideas Best of Benzinga

 

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