Yahoo Finance Capital One Leaps 8.6% on 2nd Quarter Earnings Beat, Hopes for Bigger Shareholder Payouts
- By Holly LaFon
Shares of Capital One Financial Corp. (COF), the 10th biggest bank in the U.S., jumped almost 9% Friday when the company announced second-quarter earnings that beat analysts' expectations.
Analysts looking for $1.90 diluted earnings per share from the credit-focused bank instead saw $1.94 in diluted EPS, exceeding expectations by 2.10%. The earnings excluded $12 million in costs associated with the sale of its Caleba's acquisition, without which earnings would have totaled $1.96 per diluted share. Capital One also posted a revenue increase of 3% to $6.7 billion.
Warning! GuruFocus has detected 5 Warning Signs with COF. Click here to check it out.
The intrinsic value of COF
Net interest margins increased by 15 basis points year over year to 6.88%, driven by higher interest rates, its Domestic Card business and runoff in its acquired home loan portfolio.
"We're investing to grow and transform our company as banking goes digital, we're driving improving efficiency, and we are building an enduring customer franchise. We continue to be in a strong position to deliver attractive growth and returns, as well as significant capital distribution, subject to regulatory approval," Richard D. Fairbank, Founder, Chairman and CEO of Capital One, said.
Capital One was the only bank out of 34 not to pass a stress test in late June that would have allowed it to increase its dividend and share repurchases. The Fed gave the bank conditional approval if it resubmitted its plan, contributing to an almost 2% drop in its share price the day of the announcement.
The bank's second-quarter results painted a more positive picture than investors witnessed in the first quarter. Bernard Horn (Trades, Portfolio) wrote about the company in his second-quarter letter released this week.
"As expectations for favorable U.S. financial reform fade, Capital One Financial Corp.'s 1Q 2017 results fell short of market expectations driven by lower revenue growth and higher loan loss provisions," he wrote. "Moreover, competition is putting pressure on domestic card credit quality, and loan growth is decelerating on the back of oversupply of credit and greater consumer indebtedness."
As of the second quarter, Capital One pays a dividend of 40 cents and was permitted to repurchase $1.85 billion of its shares. If its revised plan fails to gain approval by the end of the year, the Fed may require it to trim payouts through the first half of 2018.
Capital One's consumer banking segment saw growth across almost all its commercial banking segment, except the percentage of performing loans falling into a risk category, which rose to 3.9% from 3.7% in second quarter 2016.
In its credit card segment, its largest, Capital One reported growth across the board over the same quarter the prior year. Sequentially, provision for credit losses had the sharpest drop, down 19%. Loans reached $4.7 billion, up 5% year over year, while average loans grew $5.7 billion, or 6%.
Over the longer term, Capital One's operating margins have been in decline for the past three years. The bank also has a price-earnings ratio of 13.3 and price-book ratio of 0.87.
Capital One was the second-highest jumping stock in the S&P 500 Friday, ending the session at $87.94 per share and bringing its year-to-date return to 0.8%.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 5 Warning Signs with COF. Click here to check it out.
The intrinsic value of COF
