Capital One Financial Corp. (NYSE: COF) surprised to the upside in this quarter's earnings. Expectations were for $1.96 but the company delivered $2.14 per share. While the market surprise has pushed the stock higher, it is my belief that higher interest rates and higher delinquency rates are going to weigh on the company in the future; this elevated price may be a good time to exit.
Delinquency rates for credit cards are on the rise. Capital One reported a nearly 1% increase during the month of August alone. This becomes problematic for the company: Capital One said its earnings were higher than expected due to higher interest rates. But, higher interest rates mean higher payments and higher default rates. If delinquency rates continue to rise, and at the very least achieve average, then Capital One's situation would deteriorate significantly.
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