Capital One Financial reported an 8 percent decline in share profits during July, an eyesore stemming from an abnormally weak Q2 earnings report. The financial institution, known for their subprime credit card offerings, received a downgrade from Zacks to “sell” for falling short on their Consensus Estimates.
Overall, second quarter income hit $863 million, or roughly $1.78 earnings per share. Wall Street analysts were hoping for around $1.97 per share, an amicable request given their $2.07 per share net income from Q2 2014. Possibly stemming from consumer bankruptcies and slow credit use, Capital One has now botched earnings expectations three of the last four quarters.
Credit losses reported by Capital One have hit $1.1 billion, mainly stemming from delinquencies and nonperforming commercial loan products, which tripled to.09 percent. Many investors could opt to hold their stocks, hope for an incredible Q3 rebound, then diversify their portfolios with any dividend gains. However, an imminent increase by the Fed will impact businesses like Capital One, which is usually evident through higher defaults.
With America’s once downtrodden economy running on full cylinders, banking products are again seeing more use, specifically in the consumer credit sector. Capital One greeted this news with an increase in salaries and associate benefits of roughly $149 million. With delinquency rates actually being reported by Capital One management as low and soon to be normalized, investors could expect hiking losses and profit constrains. Analysts are having a tough time pinpointing what could happen next, although the forecast is looking up.
What’s actually surprising is the inexpensive nature of Capital One Financial as an investment product, registering at 10 times their forward earnings. Capital One has been known to outperform expectations, so Q3 should return some interesting figures.
The McLean, VA based Capital One had recently found themselves sideswiped by federal regulators for deficiencies in anti-money laundering compliance stemming for their retired check-cashing business, although this news hasn’t deterred movement on the NYSE. They’re also slated to close five banking centers around New Orleans, which one report cites will make the company more efficient. Capital One has also received an A- credit rating, suggesting the company is at low risk of defaulting on consumer lending.
Having recently slashed their cashback feature in Europe, Capital One has finance experts wondering if these earnings reports are an anomaly, or signs of things to come. With Uber taking off and energy sector lending exposure tumultuously hanging on to hopes of breaking through, the world can only hope COF will hold on and send investors with something in their wallets soon.
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