Capital One Upgraded to Neutral - Analyst Blog
01 May 2013 - 4:30AM
Zacks
On Apr 25, 2013, we upgraded our recommendation on
Capital One Financial Corp. (COF) to Neutral from
Underperform. Our decision rests on Capital One’s
better-than-expected first quarter earnings. However, rising
expenses and weak demand for loans are causes of concern.
Why the Upgrade?
Capital One’s first-quarter 2013 earnings of $1.79 per share came
in nearly 27% above the prior-quarter earnings of $1.41. The
results benefited from a decline in operating expenses, partially
offset by lower top line. Moreover, strong profitability and
capital ratios as well as continued improvement in asset quality
were the other highlights for the quarter.
The Zacks Consensus Estimate for 2013 has gone up 0.6% to $6.53 per
share and it inched up just 0.1% to $6.73 per share for 2014. With
the Zacks Consensus Estimates for both 2013 and 2014 modestly going
up, Capital One currently carries a Zacks Rank #3 (Hold).
The Federal Reserve’s approval of Capital One’s capital plan under
the Comprehensive Capital Analysis and Review (CCAR) for a 500%
hike in its dividend to $0.30 per share further endorses the
company’s strong capital position. Further, Capital One’s
geographically diversified loan portfolio, acquisition spree and
solid credit card businesses are expected to improve its financials
going forward.
However, increased operating expenses, immense pressure on credit
quality and stringent capital, liquidity and leverage ratio
requirements under the financial reform law are expected to
restrict Capital One’s ability to pursue business
opportunities.
Other Stocks to Consider
Banking stocks that are performing better than Capital One and
worth a look include State Street Corp. (STT),
Fifth Third Bancorp (FITB) and Credit
Acceptance Corp. (CACC). All these carry a Zacks Rank #2
(Buy).
CREDIT ACCEPT (CACC): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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