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Capital One’s Q2 Results Spoil Investors’ Mood

Story Highlights

Despite healthy revenue growth, Capital One’s earnings in the second quarter plummeted from the year-ago quarter. 

Capital One Financial Corporation (NYSE: COF) has failed to impress investors with its second-quarter 2022 results, as the company’s earnings and revenues lagged consensus estimates by 2.6% and 1%, respectively.

Following the release, shares of this $45.1-billion banking company declined 4.2% in Thursday’s extended trading session. Notably, the stock closed at $114.7 in the normal trading session of the day.

Highlights of Capital One’s Q2 Performance

Capital One’s earnings were $4.96 per share in the quarter, below the consensus expectation of $5.09 per share. Also, the bottom line was down 35.7% year-over-year.

Revenues of $8.23 billion were lower than the analysts’ expectation of $8.31 billion. On a year-over-year basis, the top line increased 12% on the back of a 13% rise in net interest income and a 5% surge in non-interest income.

In the quarter, revenues of the Credit Card segment inched up 0.2% year-over-year to $5.31 billion and the Consumer Banking segment’s revenues rose 1.1% to $2.24 billion. For the Commercial Banking segment, revenues stood at $0.91 billion, up 2.6% year-over-year.

Metrics that remained unfavorable for the bank include adjusted efficiency ratio (55.67% in Q2 versus 53.04% in the year-ago quarter), common equity Tier 1 capital ratio (12.1% versus 14.5%), and total deposits ($307.9 billion versus $306.3 billion).

Meanwhile, favorable metrics included an adjusted operating efficiency ratio (43.49% in Q2 versus 44.63% in the year-ago quarter), and loans held for investment ($296.4 billion versus $249.6 billion).

The Founder, Chairman, and CEO of Capital One, Richard D. Fairbank, said, “We continued to drive attractive and resilient growth in the second quarter, and we’re staying focused on the most resilient businesses and opportunities.”

Wall Street Is Cautiously Optimistic about COF Stock

The company has a Moderate Buy consensus rating based on nine Buys, five Holds, and one Sell. COF’s average price forecast is $148.71, suggesting an upside potential of 30.14% from the current level.

Shares of Capital One have lost 29.2% over the past year.

Following the company’s second-quarter results, Meng Jiao of Deutsche Bank maintained a Buy rating on COF while lowering the price target to $170 (48.77% upside potential) from $192.

Bloggers Are Bullish on Capital One

According to TipRanks, financial bloggers are 87% Bullish on Capital One versus the sector average of 66%.

For Now, Investors Should Wait & Watch

Dismal second-quarter numbers, unfavorable metrics, and softness in credit card businesses are concerning for Capital One. As of now, a wait-and-watch strategy is expected to be beneficial for investors interested in COF stock.

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