Capital One Financial Corp is scheduled to report their fourth quarter 2009 results before the market opens on Thursday, January 21, 2010. The last four quarters ending September 2009, have been a story of contrast. In the December 2008 quarter, the firm hugely disappointed investors with a very large deviation from the market's consensus estimate of losses. For the next two quarters, the company continued to bridge the gap in loss estimates but nevertheless didn't register a dime of profit. However, in the quarter ending September 2009, the firm pleased the investors with very large positive deviation in earnings. Going forward, how could the story unfold?
Capital One Financial Corporation is a diversified financial services provider in the US. The company organized its business in two segments: national lending, local banking. Further national lending is segregated in to two sub-segments: US card and the other national, which includes auto finance and international lending.
In the third quarter, COF reported an EPS of $1.05 on revenue of $4.29 billion. Analysts' estimates for the quarter ending December 2009 range from a low of $0.05 to a high of $0.6 with a consensus of $0.414. According to Thomson Financial, for the fiscal quarter ending December 2009, the consensus EPS forecast has decreased over the past week from $0.415 to $0.414 (-0.24%) and increased over the past month from $0.402 to $0.414 (2.99%). Of the 26 analysts making quarterly forecasts, 7 raised and 1 lowered their forecast.
The upward revisions in estimates over the past month and the downward revisions over the past week tell two different stories. The downward revision in the estimates is attributable to a substantial decline in fixed income, currency and commodities trading in the fourth quarter of 2009. Declining consumer debt is also expected to have contributed to the downward revision. For instance, Federal Reserve Board's announcement of household debt in Q3 2009 contributed to a loss of 75 cents in the company's share price.
In the fourth quarter, the company is expected to have continued to benefit from synergies from its geographic diversification and expense management initiatives. The repayment of the TARP bailout money and the warrants sell-off by the Treasury should bode well for investors, as the company is now free from government intervention and pay restrictions. In this quarter there were some negative developments as well - increased provisions and decreased average deposits were on the downside. Returns to investors could also be affected by the year-end increase in operating expenses, costs associated with the implementation of the card law and increased marketing expenses.
Currently, the stock is trading at $41.86, compared to 52 week range of $7.8 and $43.19. In the last one year the share price saw an appreciation of 42.18% and has the earnings power to sustain double digit growth rates. I believe the stock price is likely to appreciate to $45 in the next two quarters. So go ahead and accumulate the stock in phases.
