Capital One Financial Corp. (NYSE:
COF) is scheduled to report its Q1 2010 results after the market closes on April 22, 2010. Company management has provided a very positive outlook for fiscal 2010. They expect the charge-off rate for Q1 2010 to cross 11% driven by declining loan balances and the effective pricing actions flowing through to charge-off. Furthermore, they expect to reach the quarterly peak of charge-off dollars in Q1 2010. But barring significant adverse changes to long-term credit outlook or the regulatory environment, the domestic card business is expected to remain profitable in 2010.
The card industry NCOs are expected to peak in 1Q10, although several issuers have already seen the peak. Rebounding travel revenues are expected, in addition to positive momentum in consumer spending trends. EPS is estimated to reach $0.39 and the TARP warrants (strike of $42.13) will begin to be reflected in Q1 2010 diluted share count.
Capital One Financial is a holding company whose subsidiaries provide a variety of products and services to consumers using its proprietary information-based strategy. The corporation''s principal subsidiary, Capital One Bank offers credit card products. Capital One Services, Inc., another subsidiary of the corporation, provides various operating, administrative and other services to the corporation and its subsidiaries.
Capital One Financial Corp. posted a solid net income from continuing operations in Q4 2009 of $403.9 million. Company's profit soared by a $386 million loan loss allowance release, which was driven primarily by improving credit performance in the Auto finance portfolio and by the changing size and structure of the Domestic Card portfolio. IBPT declined by 13% on a quarterly linked basis to $2.4 billion, but enough to absorb credit costs. Continuing deterioration in the Commercial Banking and Consumer Banking loan portfolios resulted in reserve builds of $115 million and $54 million respectively, causing losses in these segments. Finally, the Company reported a Tier 1 ratio of 13.8% and a tangible common equity plus allowance-to-tangible managed asset ratio (TCE ratio) of 8.4%.
Analysts' estimates for Q1 2010 range from a low of $0.28 to a high of $0.95, compared to a consensus estimate of $0.58, with number of estimates being 18 and the co-efficient variance 31.31. COF is expected to ramp up marketing expense over the next year, significantly above the unsustainable levels of '09. Although marketing spend will drive growth (or less shrinkage) there will likely be a lag effect, where expense ratios temporarily tick up before the revenue benefit is realized. Credit improvements will likely lag the peer group as card portfolio is skewed to subprime, 12% of loans are CRE, and 11% of loans are residential mortgages, which the firm wants to de-emphasize. The firm also plans on building capital ratios through balance sheet shrinkage. The TCE ratio will decline -100bps to 5.3% sequentially in Q1 2010, and this is a base off of which TCE ratio will increase. The quality of the TCE ratio is better than it has been in the past, since COF is now reserved against its full credit card book.
The stock closed at $ 45.11, down 0.15% on April 12, 2010. Most analysts' recommend Capital One as a relative Overweight with a price target of $45.
