On Jan 4, 2018, we issued an updated research report on Capital One Financial Corporation COF. Driven by loan growth and strength in its credit card and online banking businesses, the company remains well positioned for top-line improvement. While, mounting expenses and deteriorating asset quality might hurt bottom-line growth, given a solid liquidity position, the company is expected to continue enhancing shareholder value through efficient capital deployment activities.
The company’s price performance also looks encouraging. Its shares have gained 14.5% in the past year, outperforming 6.3% growth for the industry it belongs to.
Further, its Zacks Consensus Estimate for 2018 earnings has also been revised 2.1% upward over the past 30 days, reflecting analysts’ optimism about its earnings growth potential. Thus, the stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Capital One’s revenue growth looks promising driven by higher loan demand and acquisitions. In the last few years, it has acquired the online banking unit of ING Direct USA and HSBC Holdings Plc’s HSBC U.S. credit card business, which has been largely driving revenues. In fact, the acquisition of Cabela's credit card portfolio further supports its growth prospects.
Moreover, the company’s Domestic Card, which accounts for more than 85% of its Credit Card net revenues has shown solid loan growth and purchase volume growth. Given the domestic economic recovery, the company’s Credit Card segment should continue to show strength.
A geographically diversified loan and deposit portfolio remains another positive for the company. Many of the company’s strategic decisions and inorganic expansion plans over the last few years have helped it counter economic challenges.
However, elevated non-interest expenses remain a concern for Capital One. As the company continues to invest in franchise and grow inorganically, expenses are projected to remain elevated in the near term, thereby hurting bottom-line growth.
Also, Capital One’s asset quality has been deteriorating over the last couple of years, with both provision for credit losses and net charge-off rates witnessing a rise.
Other Stock to Consider
A couple of other stocks worth considering in the same space are Ally Financial Inc. ALLY and Discover Financial Services DFS, each carrying a Zacks Rank of 2.
Ally Financial’s Zacks Consensus Estimate for 2017 earnings has remained stable over the last 30 days. Its shares have gained 49.5% in the past year.
Discover Financial’s earnings estimates for 2017 have also remained stable over the last 30 days. Its share price has increased 8.6% in a year’s time.
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