Capital One Stock Topped The Consensus In Q1, Is It Attractive?

+0.47%
Upside
145
Market
145
Trefis
COF: Capital One Financial logo
COF
Capital One Financial

Capital One’s stock (NYSE: COF) has lost 10% YTD, outperforming the 13% drop in the S&P500 over the same period. Further, it is currently trading at $128 per share, which is 24% below its fair value of $168 – Trefis’ estimate for Capital One’s valuationThe company surpassed the consensus estimates in the first quarter. It reported total revenues of $8.2 billion – up 15% y-o-y. This could be attributed to a 10% y-o-y jump in net interest income (NII), followed by a 38% rise in noninterest income. While the NII benefited from higher interest-earning assets, the improvement in the consumer activity levels aided noninterest revenues. That said, the adjusted net income declined 28% y-o-y to $2.3 billion in the quarter. It was due to an increase in total expenses as a % of revenues from 53% to 56% and higher provisions for credit losses.

The company’s top-line increased 7% y-o-y to $30.3 billion in 2021. It was driven by a 5% growth in the NII and a 12% rise in the noninterest revenues. The NII was up due to a higher outstanding loan balance in the consumer banking business. Similarly, growth in the noninterest revenues was because of improvement in the consumer spending levels. Further, the firm reduced its provisions for credit losses from $10.3 billion to -$1.9 billion in the year. This resulted in a more than 4x increase in the adjusted net income to $11.97 billion.

The recent increase in the benchmark interest rates by the Federal Reserve (0.50% on Wednesday and 0.25% in March) is likely to be followed by several rate hikes over the coming months. It is expected to benefit the net interest margin. Further, the recovery in the consumer spending levels is anticipated to drive the noninterest revenues. Overall, Capital One revenues are expected to touch $33.3 billion in FY2022. Additionally, COF’s adjusted net income margin, which increased from 8.3% to 39.3% in 2021, is likely to normalize around 23.6% in 2022, leading to an adjusted net income of $7.9 billion. This coupled with an annual EPS of $19.37 and a P/E multiple of just below 9x will lead to the valuation of $168.

Relevant Articles
  1. Capital One Stock Gained 44% In The Last 6 Months, What’s Next?
  2. Up 40% Since The Beginning Of 2023, How Will Capital One Stock Trend After Q4 Earnings
  3. Up 25% Since The Beginning Of 2023, Will Capital One Stock Continue To Rally?
  4. Capital One Stock Gained 14% YTD And Outperformed The Estimates In Q3
  5. What To Expect From Capital One Stock?
  6. Capital One Missed The Consensus In Q1, What’s Next?

Here you’ll find our previous coverage of Capital One stock, where you can track our view over time.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 COF Return 5% -10% 49%
 S&P 500 Return 0% -13% 85%
 Trefis Multi-Strategy Portfolio 0% -17% 227%

[1] Month-to-date and year-to-date as of 5/6/2022
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates