CNBC Stock Blog

Capital One's Blunder Just the Beginning: Analyst

Jennifer Leigh Parker|Special to

Capital One'sshares were hammered, after falling far short of fourth-quarter earnings' estimateson Thursday. Gary Perlin, the company's chief financial officer, called it a "noisy quarter" during a conference call, but Robert Napoli, financial services analyst for William Blair, expects the negative tone to extend well into this year.

Napoli cut the consumer-finance company's rating to “market perform” from “outperform,” mainly because of its higher-than-expected expenses.

"The expenses hurt, but it was beyond expenses," he said. "They gave guidance at the end of the third quarter on flat expenses into the fourth quarter, and then really surprised negatively on that."

The market didn't take the surprise too well; Capital One is one of Friday's biggest losers on the S&P 500.

"This is going to be a very volatile year for Capital One. They'll be closing on two large acquisitions. They don't have the greatest track record on acquisitions," Napoli warned. "I think you need to be cautious." He did not comment further on the details of the acquisitions. 

Capital One Misses Estimates

Comparatively, the competition is "riding on the high returns" generated from the long-term trend of increased credit-card use, he said.

"(American Express) is a different animal than Capital One," Napoli said. "It has lots of extra capital tied to the secular growth of payments. They're driving high returns."

Secular growth in this context simply means long-term growth that is seen as unrelated to the waves of the shorter-term, cyclical business cycle.

On this basis, William Blair raised its estimates for American Express , Visa, and Mastercard , which Napoli says are "all riding the secular growth of payments."

Every time customers use their credit cards, these companies get a cut. While Capital One also counts this as a revenue stream, the hurdle of high expenses gave competitor's the edge in the fourth quarter.

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William Blair is a market maker in the securities of Capital One, Visa, Mastercard, and American Express, and may have a long or short position. Robert Napoli does not personally own these stocks.