On Sep 3, 2014, we issued an updated research report on Capital One Financial Corporation (COF). The company exhibits prudent expense management and remains strong in its Credit Card business.
Over the last few quarters, operating expenses have been on a declining trend at Capital One. Though expenses had been mounting over the past two years, we believe that it was owing to the two major acquisitions by the company. Notably, in the first six months of 2014, non-interest expenses have shown a downward trend driven by cost saving initiatives.
Further, Capital One continues to remain strong in its Credit Card business. In order to further boost growth in the same, the company acquired HSBC Holdings Plc’s (HSBC) U.S. credit card business in 2012. Given the slight recovery in the economy, we believe that the company’s Credit Card operations will continue to grow.
Additionally, these positives have made analysts bullish on the stock as reflected in the movement of the Zacks Consensus Estimate over the past 60 days. For 2014, the Zacks Consensus Estimate advanced 5.3% to $7.60 per share and for 2015 it increased 2.6% to $7.63 per share.
However, slump in overall revenues remains a major concern at Capital One. Though the top line showed significant improvement in 2012 and 2013 (mainly driven by the acquisitions of ING Direct USA and HSBC’s U.S. credit card business), it has been showing a declining trend for the last couple of quarters. We believe that the top line will likely be under pressure due to low interest rate environment and slower loan demand.
Capital One currently carries a Zacks Rank #2 (Buy)
Stocks That Warrant a Look
Some better-ranked finance stocks include Arlington Asset Investment Corp. (AI) and Piper Jaffray Companies (PJC). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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