Credit Suisse cuts estimates on Capital One following 1Q miss, reiterates Outperform

Credit Suisse reiterated an Outperform rating on Capital One Financial (NYSE:) and cut their price target on the stock to $108.00 (from $112.00) after the bank holding company reported 1Q results below expectations.

COF 1Q EPS of $2.31, below Credit Suisse’s estimate of $4.00 and the consensus of $3.84. Revenue for the quarter came in at $8.9 billion versus the consensus estimate of $9.06 billion.

Analysts wrote in a note, “The miss against CSe was primarily driven by higher provision ($2.00 impact), due to bigger reserve build in credit card and commercial, though losses were in line. The reserve build in commercial was primarily driven by COF’s commercial office real estate portfolio ($3.6 Bn in balances), whose criticized and nonperforming rates have increased. Lower fee revenue drove lower revenues than expected ($0.17 impact). Opex was lower than CSe ($0.33 benefit), including lower marketing. COF also benefited from a lower tax rate in the quarter. Though EPS was below our forecast, card loan growth and purchase volume were both ahead. Coupled with declining credit card payment rate, this should result in higher than-consensus card loan growth, which would drive future NII. Buyback continues to be low in the short term.”

COF continues to target CET1 of 11% (12.5% currently). Capital One expects 2023 operating efficiency ratio to be roughly flat to modestly down compared to 2022. The company also expects monthly charge-off rates to get back to 2019 levels around the middle of 2023. Management believes COF’s cash balance will stay elevated relative to pre-pandemic levels in the near term, though this should trend down eventually over time, a tailwind for NIM.

Credit Suisse adjusted 2023/2024 EPS estimates to $12.25/16.00 (from: $14.00/$16.50), reflecting 1Q results.

Shares of COF are up 1.76% in afternoon trading on Friday.