Capital One (NYSE: COF) is scheduled to report its Q1 2021 outcomes on Tuesday, April 27 (after the market closes). We count on Capital One to beat consensus estimates for revenues, though earnings are prone to are available in under expectations. The bank card big surpassed the consensus estimates for revenues and earnings in every of the final two quarters. Nevertheless, its web curiosity earnings – which contributes roughly 80% of its prime line – suffered in 2020 because of the low interest-rate surroundings and the drop in client spending ranges. The impression was additionally felt on card buy volumes, which deteriorated for the 12 months – hurting interchange charges. That stated, client spending ranges have seen some enchancment over latest months. Additional, COF has decreased its provisions for mortgage losses over the past two quarters on a sequential foundation, boosting its profitability figures. We count on the identical development to manipulate the first-quarter FY2021 outcomes as effectively.
Our forecast signifies that Capital One’s valuation is round $126 per share, which is 8% under the present market value of round $136. Our interactive dashboard evaluation on Capital One’s pre-earnings has further particulars.
(1) Revenues anticipated to beat consensus estimates in Q1
Trefis estimates Capital One’s fiscal Q1 2021 revenues to be round $7.18 billion, 3% above the $6.98 billion consensus estimate. Capital one is closely depending on web curiosity earnings, which decreased 2% y-o-y in 2020. It could possibly be attributed to the low rate of interest surroundings which decreased the yields on common incomes property at the same time as a rise in deposit balances resulted in larger curiosity bills. Additional, the drop in client spending ranges because of the financial slowdown negatively affected the excellent loans and card buy volumes. Regardless of the above elements, Capital one managed to report complete revenues of $28.5 billion for the complete 12 months 2020 – solely marginally decrease than the 2019 determine, attributable to an unrealized valuation acquire of $535 million on fairness funding in Snowflake Inc.
Client spending ranges have seen some restoration over the latest quarters. We count on low rates of interest and a slight enchancment within the spending ranges to drive the first-quarter outcomes of FY2021. Additional, rates of interest are unlikely to see an instantaneous revival to pre-Covid-19 ranges, with the Fed sustaining its benchmark fee close to zero. Nevertheless, we count on client spending ranges to proceed their upward trajectory over subsequent quarters with anticipated enchancment within the financial situations. That is prone to allow the corporate’s top-line to the touch $29 billion in FY2021. Our dashboard on Capital One’s revenues affords extra particulars on the corporate’s segments.
2) EPS prone to miss consensus estimates
Capital One’s Q1 2021 adjusted earnings per share is predicted to be $3.65 per Trefis evaluation, nearly 13% under the consensus estimate of $4.17. The corporate’s profitability figures decreased considerably in 2020 – adjusted web earnings decreased 54% y-o-y to $2.4 billion, leading to an EPS of $5.18 for the 12 months. A large build-up primarily drove it in provisions for mortgage losses from $6.2 billion to $10.3 billion (up 65% y-o-y). The corporate has a mortgage portfolio of round $253 billion (as per 2020 figures) comprising client, business, and bank card loans. It elevated its provisions to compensate for its clients’ deteriorating mortgage reimbursement functionality because of the Covid-19 disaster. That stated, the corporate has decreased its provisions over the past two quarters, signaling some restoration within the mortgage reimbursement functionality of its clients. We count on the identical development to proceed within the FY2021 Q1 outcomes.
The mortgage reimbursement functionality is immediately linked to the financial restoration. As financial situations enhance, it is going to seemingly lead to a good drop in provisions for mortgage losses – boosting Capital One’s profitability. Total, it is going to allow COF to report an EPS of round $11.92 in FY2021.
(3) Inventory value estimate 8% decrease than the present market value
Going by our Capital One’s valuation, with an EPS estimate of round $11.92 and a P/E a number of of just under 11x in fiscal 2021, this interprets right into a value of $126, which is 8% under the present market value of round $136.
Notice: P/E Multiples are based mostly on Share Worth on the finish of the 12 months and reported (or anticipated) Adjusted Earnings for the complete 12 months
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