Bank of America has downgraded Capital One Financial Corp. COF 1.34% from Neutral to Underperform, saying the company’s lackluster Q1 performance is more than just disappointing – it’s sloppy. Analyst Kenneth Bruce said uncertainty is likely going to limit the upside for Capital One until the company straightens things out.

“We are increasingly concerned that the growth in sub-prime credit cards could drive higher losses than is currently factored into either guidance or expectations, which we think would be ill received by the market,” Bruce explained.

Despite top- and bottom-line misses in Q1, management maintained its 2016 credit guidance and optimism about growth.

Bank of America is not quite so optimistic. The firm lowered its 2016/2017 EPS projections from $7.65/8.35 to $7.50/$8.15. Bruce noted that yields have not been moving higher despite a mix shift toward sub-prime. Fee growth has also been disappointing.

Bruce said…

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