Capital One Finance Corp. (COF)

Last update - 30 March 2021 By James Woods

Capital One Financial Corporation (COF) provides commercial banking services.

Key Statistics
52-Week Range Avg. Daily Vol (3 Mo) Market Value Dividend Yield Float % Target Price Consensus Rating
(5 strong buy – 1 strong sell)
Next Earnings Announcement
49.41-134.70 3,379,242 60,718.1 1.2% 98.9% 140.87 4.54 28/04/2021

 

Capital One Financial Corporation (COF) provides commercial banking services including deposits and offers personal credit cards, investment productions, auto loans, personal loans, and online banking services and is one of the most well know issuers of Visa and MasterCard credit cards in the United States. In addition to the U.S. COF also offers products in Europe through Capital One (Europe) plc and COBNA in Canada with approximately 45 million customer accounts globally.

COF’s largest segment is the credit card business accounting for 62% of revenue in 2020, providing lending for consumers and small businesses in the U.S, Canada, and the U.K. The next largest segment is consumer banking, accounting for 27% of revenue in 2020, which operates the company’s branch network in the U.S. offering lending and deposits for retail and small business customers including auto loans which account for almost the entirety of Capital One’s consumer loans. The smallest business segment is commercial banking, accounting for the remaining 10% of revenue and focuses on commercial, real estate, and industrial clients generating greater than US$20m in revenue per annum offering lending, deposits, capital markets, and treasury management services. Geographically the U.S. is the main market, generating 57% of sales in 2020 vs 43% for the U.K. and Canada.

With write-offs set to rise in 2021 as support for consumers from lenders and the government winds down, COF is likely to focus on cutting costs, predominantly through headcount and seeking to improve operating efficiency which could potential add US$1 billion to pre-tax profit by 2023. Additional cost-cutting measures could be implemented by reducing physical branches, of which there are approximately 500 across the U.S. with deposits captured mostly online, while auto loans are generated through car dealerships and credit cards are sold directly to consumers.

Revenue for 2021 is expected to remain flat as consumers remain debt averse in the wake of the pandemic, while credit card growth is still seen as driving long-term growth. With rising bond yields and a steepening yield curve, net interest margins are likely to rise.

For the year ending December 2020, revenue is expected to be flat at US$28,565m before rising +4.8% in 2022 to US$29,925m. Adjusted earnings per share is expected to rise +124% in 2021 to US$13.02 and grow at the slower rate of 8% in 2022 to US$14.08. Based on these adjusted estimates, the stock trades on forward P/E ratios of 10.2 and 9.4 for 2021 and 2022, -20% and -9% discounts to the peer group averages of 12.8 and 10.4.

The average target price of analysts covering the stock is $176.62 with 81% of analysts rating the stock as a buy, compared to 4% as a sell and 15% as a hold.

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