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Here’s Why Capital One Is Down Today

By Matthew Frankel, CFP® – Apr 25, 2018 at 2:41PM

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Despite the company's solid earnings, its stock price is sharply down

What happened

Capital One Financial (COF 3.99%) reported its first-quarter earnings Tuesday afternoon, and the results were mixed. Shares were down 5% as of 3 p.m. EDT on Wednesday.

Much of the report looked good. The company's adjusted earnings of $2.65 per share handily beat analysts' expectations of $2.33. In addition, Capital One's loans increased by about $7 billion year over year, and the company's provision for credit losses declined by 16%. Also, credit card purchase volume soared 18% from a year ago.

Person holding a stack of credit cards.

Image Source: Getty Images.

So what

On the other hand, there were some disappointing aspects of the company's report. First, while the bank's $6.91 billion in revenue represented 6% year-over-year growth, it fell short of the $6.94 billion that was expected.

Furthermore, another possible disappointment was Capital One's net interest margin. In a nutshell, the Federal Reserve interest-rate hikes generally have resulted in higher earnings margins in the banking industry, but Capital One's net interest margin actually fell by 10 basis points from the fourth quarter and is only up by 5 basis points over the past year.

Now what

To be clear, Capital One didn't have a terrible quarter. Rather, the real issue here could be that most other banks that have reported earnings so far had great quarters. Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, and even scandal-plagued Wells Fargo all beat estimates on both the top and bottom lines. Some posted excellent interest margin growth, and some grew much more impressively than Capital One.

In short, investors may have gotten used to seeing excellent numbers from banks, so a simply "good" quarter may seem scary by comparison.

Matthew Frankel owns shares of Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Capital One Financial Corporation Stock Quote
Capital One Financial Corporation
COF
$95.04 (3.99%) $3.65

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