On Nov 13, 2014, we issued an updated research report on Capital One Financial Corporation (COF). The company continues to exhibit prudent expense management and its Credit Card business remains robust.
Over the last several quarters, operating expenses have witnessed a steady decline 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. In the coming quarters, the company expects costs to remain controlled, though marketing expenses are anticipated to rise.
Further, Capital One’s Credit Card business exhibits strong growth. In 2012, the company had acquired HSBC Holdings Plc’s (HSBC) U.S. credit card business with an aim to boost its growth. Given the recovery in the economy, we believe that its credit card operations will continue to improve.
However, a slump in revenues remains a major concern at Capital One. Though the top line showed significant improvement over the past two years (2012–2013), we believe this was attributable to the acquisitions of ING Direct USA and HSBC’s U.S. credit card business.
Now, over the last few quarters, revenues have been showing a declining trend. Despite signs of improvement in the overall economy, we believe Capital One’s top line will remain under pressure until rates rise (which is not expected before mid-2015) and loan demand increases substantially.
Additionally, analysts have been showing mixed sentiments for Capital One. This, we believe comes as a result of continuing pressure on its top line, while lower expenses remain a positive catalyst. The Zacks Consensus Estimate declined nearly 1% to $7.64 per share for 2014, while for 2015, it inched up roughly 1% to $7.76 per share, over the past 60 days.
Capital One currently carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Some better-ranked finance stocks include Ally Financial Inc. (ALLY) and Credit Acceptance Corp. (CACC). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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