On Mar 5, 2014, we issued an updated research report on Capital One Financial Corp. (COF). Though the company reported lower-than-expected fourth-quarter 2013 results, its organic and inorganic growth strategies as well as strong balance sheet position will likely continue to support its financials.
Capital One has taken several strategic decisions over the past few years, which have helped it counter economic challenges. These include focusing on the healthiest businesses while largely avoiding less resilient ventures such as mortgages. Further, Domestic Card business continues to deliver strong returns on a risk-adjusted basis, with a continuous rise in revenues.
Additionally, Capital One is an attractive pick for yield-seeking investors. In 2013, for the first time since the financial crisis, the company announced an enhanced capital deployment plan. Notably, management expects to generate a payout ratio above the industry average of 50%, upon approval of its 2014 Capital Analysis and Review (CCAR).
However, Capital One’s fourth-quarter 2013 earnings missed the Zacks Consensus Estimate by 5.8%. Results were adversely impacted by a fall in net interest income and slight rise in operating expenses.
Dismal results at Capital One triggered a downward revision of the Zacks Consensus Estimate, as analysts turned more bearish on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate over the past 60 days. For 2014, it decreased 1.7% to $6.81 per share while it declined 2.7% to $7.29 for 2015.
Capital One now has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked stocks in the same sector include Discover Financial Services (DFS), The First Marblehead Corp. (FMD) and World Acceptance Corp. (WRLD). All of these have a Zacks Rank #2 (Buy).
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