Capital One (NYSE: COF) is scheduled to report its Q1 2021 results on Tuesday, April 27 (after the market closes). We expect Capital One to beat consensus estimates for revenues, although earnings are likely to come in below expectations. The credit card giant surpassed the consensus estimates for revenues and earnings in each of the last two quarters. However, its net interest income – which contributes roughly 80% of its top line – suffered in 2020 due to the low interest-rate environment and the drop in consumer spending levels. The impact was also felt on card purchase volumes, which deteriorated for the year – hurting interchange fees. That said, consumer spending levels have seen some improvement over recent months. Further, COF has decreased its provisions for loan losses over the last two quarters on a sequential basis, boosting its profitability figures. We expect the same trend to govern the first-quarter FY2021 results as well.
Our forecast indicates that Capital One’s valuation is around $126 per share, which is 8% below the current market price of around $136. Our interactive dashboard analysis on Capital One’s pre-earnings has additional details.
(1) Revenues expected to beat consensus estimates in Q1
Trefis estimates Capital One’s fiscal Q1 2021 revenues to be around $7.18 billion, 3% above the $6.98 billion consensus estimate. Capital one is heavily dependent on net interest income, which reduced 2% y-o-y in 2020. It could be attributed to the low interest rate environment which decreased the yields on average earning assets even as an increase in deposit balances resulted in higher interest expenses. Further, the drop in consumer spending levels due to the economic slowdown negatively affected the outstanding loans and card purchase volumes. Despite the above factors, Capital one managed to report total revenues of $28.5 billion for the full year 2020 – only marginally lower than the 2019 figure, due to an unrealized valuation gain of $535 million on equity investment in Snowflake Inc.
Consumer spending levels have seen some recovery over the recent quarters. We expect low interest rates and a slight improvement in the spending levels to drive the first-quarter results of FY2021. Further, interest rates are unlikely to see an immediate revival to pre-Covid-19 levels, with the Fed maintaining its benchmark rate near zero. However, we expect consumer spending levels to continue their upward trajectory over subsequent quarters with expected improvement in the economic conditions. This is likely to enable the company’s top-line to touch $29 billion in FY2021. Our dashboard on Capital One’s revenues offers more details on the company’s…