Are Credit Cards 60%, 75%, or 90% of Capital One’s Stock?

by Trefis Team
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Capital One (NYSE: COF) is one of the largest issuer of credit cards in the U.S. with more than $110 billion in outstanding credit card loans at the end of 2018. While the bank is best known for its card offerings, it has also grown its consumer banking and commercial banking operations considerably over recent years. As a result, the cards business has contributed around 63% of Capital One’s top line over the last three years.

Trefis details the key components of Capital One’s Revenues in an interactive dashboard along with our forecast for the next two years. While the bank’s revenues increased by 6.7% y-o-y in 2017, it recorded a decrease of 2.7% in the subsequent year. Moving forward, we expect it to increase at an average annual rate of 3.3% over 2019-2020.

 

What To Expect From Capital One’s Revenues?

  • Capital One has added $2.4 billion to its revenue over the last two years, from $25.4 billion in 2016 to $27.8 billion in 2018.
  • We expect revenue growth of about $1.9 billion over 2019-2020, which would be driven by about $1.5 billion from Credit Card division and $400 million from Consumer Loans division, partially offset by a marginal drop in Commercial Loans Revenues.

Details about how trends in Capital One revenues compare with peers Citigroup, Wells Fargo and U.S Bancorp are available in our interactive dashboard.

 

(A) Credit Card revenues are expected to cross $19.2 billion by 2020

  • It represents Capital One’s domestic consumer & small business card lending, national closed end installment lending and international card lending businesses in Canada and the United Kingdom.
  • The segment revenues have grown at an average annual rate of 5.1% over the last two years, from $16 billion in 2016 to $17.7 billion in 2018.
  • This was mainly driven by $1.6 billion increase in Net Interest Income which was due to growth in outstanding credit card balances, partially offset by slight decrease in net interest yield on credit cards.
  • Fee Income grew by $200 million over the last 2 years, driven by increase in purchase volume which crossed $387 billion in 2018, partially offset by slight drop in fee income as % of purchase volume.
  • We expect the same trend to continue over 2019-2020, which would enable the net interest income to cross $15.1 by 2020 accompanied by $4.1 billion in Fee Income.
  • Overall, the segment revenues are expected to increase at an average annual rate of 4.1% and cross $19.2 billion by 2020.

 

(B) Consumer Loans segment has contributed more than 25% of Capital One’s revenues over the last 3 years, and are expected to cross $7.6 billion by 2020

It includes the company’s branch-based lending and deposit gathering activities for small business. Further, it offers automobile lending, mortgage lending and retail loans for auto buyers, home buyers and other retail consumers in the U.S.

 

(C) Commercial Loans segment revenues fell 3% y-o-y in 2018, and are further expected to reduce 2% in 2019 before recovering slightly in 2020

  • This segment offers traditional banking products through an extensive branch network in Connecticut, Louisiana, New Jersey, New York, and Texas. Products include commercial loans (for private developers and commercial property investors), middle market loans (for businesses with turnover between $10 million-$250 million), small ticket commercial loans (for mixed-use and multi-family real-estate) and specialty lending (for equipment leasing and other specialized lending).
  • Commercial loans revenues are expected to cross $2.9 billion by 2020.

Our interactive dashboard for Capital One details what is driving changes in revenues for Capital One’s Consumer Loans and Commercial Loans segments.

Trefis estimates Capital One’s stock (shows cash and valuation analysis) to have a fair value of $103, which is roughly 5% higher than the current market price (Our price estimate takes into account Capital One’s earnings release for the third quarter).

 

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