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Capital One Financial’s Earnings Disappoint Wall Street Analysts

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Capital One shares crash last week

Shares of Capital One Financial (COF) tumbled 13.33% during the week ended July 24 due to an earnings miss. Leading investment banks such as J.P. Morgan (JPM), Goldman Sachs (GS), and Wells Fargo (WFC) downgraded the stock after earnings disappointed their estimates. Capital One Financial constitutes 0.85% of the Financial Select Sector SPDR ETF (XLF).

The company reported weaker-than-expected profits for the second quarter, marred by increased provisions for credit losses.

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2Q15 earnings

Capital One Financial declared net income of $863 million, compared to $1.2 billion reported in 2Q14. Earnings per share (or EPS) of $1.50 for the second quarter of 2015 were lower than the $2.00 reported in 1Q15 and the $2.04 reported in the same period last year.

Revenues, however, grew 3.7% over the year to $5.67 billion. Wall Street analysts expected EPS of $1.97 and revenues of $5.74 billion for this quarter.

Provisions for credit losses increased to $1.13 billion from $704 million in the second quarter of 2014.

Since the company is the largest credit card lenders in the United States, Capital One’s earnings are considered barometers of consumer sentiment. The company also offers mortgages, banks accounts, and commercial and auto loans.

Last week, American Express (AXP) and Discover Financial Services (DFS) also reported disappointing second-quarter earnings.

Analysts see value in Capital One despite weak earnings

With a relative strength index of 24, Capital One shares are extremely oversold, and some investors consider this an attractive point to enter into the stock.

On Friday, the stock closed at $78.86—below its 100-day, 50-day, and 20-day moving averages of $84, $87, and $89, respectively.

There are currently 34 analysts covering Capital One Financial stock. Of those, 19 have assigned a “buy” rating and 15 have assigned a “hold” rating. The consensus target price stands at $93.02. On Friday, the stock traded 15.02% below its target price.

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