Capital One Financial (COF) reported strong third-quarter earnings, driven by growth in its credit card and auto lending businesses. Following the release of better-than-expected Q3 results, COF stock gained about 5% in the extended trading session yesterday.
The company’s revenue increased 5% year-over-year to $10 billion and came below the consensus estimate of $9.88 billion. Furthermore, COF reported adjusted earnings of $4.51 per share, which surpassed the consensus estimate of $3.77. Further, it compared favorably with EPS of $4.45 in the year-ago quarter.
COF is a diversified bank that provides credit cards, auto loans, and banking services to consumers and businesses. (For a thorough assessment of the stock, go to TipRanks’ Stock Analysis page.)
Credit Card Unit Witnessed Growth in Q3
It is worth highlighting that Capital One’s Credit Card segment witnessed strong performance in Q3 as its revenues increased 9.4% year-over-year. During the quarter, card purchase volumes and loan balances grew by 5% and 7%, respectively.
Investors should note that Capital One’s focus on credit card debt has shielded it from challenges posed by declining interest rates. This is because credit card debt carries significantly higher interest rates than mortgages and other loan types, thereby supporting revenues.
Buoyed by the segment’s robust performance, the company’s overall net interest income, the spread between interest earned on loans and paid out to customers on deposits, rose nearly 9% to $8.1 billion in Q3.
COF’s Merger Deal Faces Regulatory Issues
It is worth mentioning that the merger of Capital One and Discover Financial (DFS), announced in February, is facing regulatory challenges. The proposed merger has raised concerns about stifling competition in the credit card industry.
Recently, a New York Attorney General initiated an antitrust probe, seeking to subpoena Capital One to assess the deal’s potential impact on consumers. Additionally, U.S. bank regulators and the Department of Justice are also examining the transaction.
Despite these regulatory challenges, Capital One remains optimistic about completing the acquisition. CEO Richard Fairbank expressed confidence in the company’s ability to navigate the approval process and successfully integrate Discover. The company anticipates closing the deal early next year, pending regulatory clearance.
The Best Analyst Covering COF Stock
Interestingly, investors considering COF stock could follow KBW analyst Sanjay Sakhrani. He is the best analyst covering the stock (in a one-year timeframe). The analyst boasts an average return of 21.1% per rating and a 92% success rate. Importantly, Sakhrani ranks among the top 1% of Street stock experts, according to TipRanks. To watch his track record, click here.
Is COF Stock a Good Buy?
Turning to Wall Street, COF has a Moderate Buy consensus rating based on four Buys and six Holds assigned in the last three months. At $166.63, the average Capital One price target implies 8.72% upside potential. Shares of the company have gained about 18% year-to-date.
However, it’s worth noting that the company’s strong earnings report may cause analysts to upgrade their ratings.
