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Capital One Earnings: Performance and 2019 ForecastCapital One Revenues: How Does Capital One Make Money?Capital One Stock (NYSE:COF)All Trefis financial Industry Data
#1 Estimating Capital One's Total Revenues
#1.1 Forecasting Capital One's Net Interest Income for Credit Card Division
Outstanding credit card balance is expected to be around $112 billion in 2019, an increase of 2% y-o-y. However, net interest yield form credit card loans is expected to drop 12 bps as compared to the previous year. This would largely offset the positive effect of growth in credit card loans and enable net interest income to cross $14.3 billion in 2019 -- a meager growth of 1% y-o-y.
Net Interest Income for Credit Card Division [=A*B]
Outstanding Credit Card Balances [A]
Net Interest Yield from Credit Card Loans [B]
#1.2 Estimating Capital One's Total Revenues
In 2019, we expect Total Revenues to be $28.2 billion, or 2% more than the level in 2018. Credit Card division is expected to report a 3% jump in revenues followed by 1% increase in consumer loans, partially offset by 2% drop in commercial loans segment.
Total Revenues [=A+B+C]
Credit Card Revenues [A]
Consumer Loans Revenues [B]
Commercial Loans Revenues [C]
Note: Please visit our interactive dashboard for detailed analysis of Capital One's Revenues.
#2 Deriving Capital One's Net Income Figure
Total Expenses would increase to $21.2 billion due to higher provision for credit losses, partially offset by operational efficiency measures. This coupled with a higher effective tax rate as compared to the previous year would reduce the net income margin to 18.5%. It would translate into a net income of $5.2 billion, 8% less than 2018.
Net Income attributed to shareholders [=A*B]
Total Revenues [A]
Net Interest Margin [B]
#3 Deriving Capital One's EPS Figure
Net Income available to common shareholders [A]
Shares Outstanding [B]
Capital One has regularly invested in share repurchases to boost shareholder returns. Its share repurchase is likely to touch $1.1 billion for the full year 2019.
This would enable the bank to report an EPS figure of $11.09 in 2019.
#4 Estimating Capital One's Share Price
Capital One Share Price [=A*B]
P/E Multiple [A]
Capital One’s P/E multiple was 6.3x in 2018.
The bank has surpassed the consensus estimates for first two quarters in 2019. Although it missed the mark in the third quarter due to lower net interest income, its total earning assets have increased in each of the last five quarters. This should enable the P/E multiple to increase to 9.3x in 2019.
We expect Capital One to achieve earnings of $11.09, which coupled with our forward P/E multiple of 9.3x works out to a price estimate of $103.
Comparing Capital One's P/E multiple with that of its Peers - Bank of America, JPMorgan and Citigroup
Note: Capital One reported a low EPS figure of $3.49 in 2017 due to one-time increase in taxes from the implementation of the U.S. Tax Act. The higher P/E multiple for 2017 was to compensate for this one time loss.
Capital One's expected P/E Multiple of 9.3x in 2019 is lower than its peers - Bank of America’s 12.9x , JPMorgan's 12.3x and Citigroup's 10.6x.The lower P/E multiple for Capital One as compared to Bank of America and JPMorgan is in line with the P/E trend over the last four years (baring 2017), where market had attached a higher growth multiple to its peers.
P/E Capital One
DISAGREE WITH OUR FORECASTS? CREATE YOUR OWN
1. How to save your forecasts for Capital One:
Click on the blue "Try Trefis" button in the header to create an account, then navigate back to this dashboard. Now, any changes you make to these inputs will be auto-saved as a scenario (see left panel of dashboard).
2. How to monitor your scenario vs. actual results
Once you've saved your forecast, you can "rename" your scenario by clicking on the gear icon next to the scenario (on the left panel). For more info, see this quick, 30-sec video (look at the 9 sec mark)
With your forecast saved and named, you can compare your forecasts to hundreds of other Trefis users who came up with their own forecasts. Lastly, you can share with friends and colleagues to show them how you fared and compare your forecasts to theirs.