Is A 40% Jump In Capital One’s Stock Possible Post Coronavirus Crisis?

by Trefis Team
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Capital One (NYSE: COF) stock declined by about 38% between 8th March 2020 and 24th March 2020 (vs. an 18% decline in the S&P 500), and the stock is down almost 49% since 31st January after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 27% decline in the S&P 500 since then). Drawing lessons from the 2008 financial crisis, we see COF stock declined from levels of around $55 in October 2007 (the pre-crisis peak) to levels of around $10 in March 2009 (as the markets bottomed out). Implying COF stock lost as much as 81% from its approximate pre-crisis peak. This marked a sharper drop than the broader S&P, which fell by 51%.

Will Capital One stock recover similarly from the coronavirus spread?

  • We compare the performance of Capital One vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Capital One Stock Fare Compared With S&P 500?
  • In fact, Capital One recovered strongly post the 2008 crisis to levels of about $33 in early 2010, rising by 220% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Overall, there have been two distinct trends driving the recent sell-off across industries. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

The effect is being felt on Capital One’s stock due to lower consumer demand. People aren’t meeting friends and colleagues for drinks, lunch, or dinner; they are not going to movies, amusement parks, vacation trips, and are refraining from any non-essential expenditure. As the credit card giant derives most of its revenues from card business, it could suffer losses due to lower consumer demand and an expected spike in loan default rates. We believe Capital One’s Q1 and Q2 results will confirm this reality with a drop in both card revenues and transaction volume.

If signs of coronavirus containment aren’t clear by the April Q1 earnings time-frame, it’s likely Capital One’s stock (along with the broader market) is going to see a continued drop when results confirm palpable reality.

What about timing?

Potential for say 40% gains in COF stock, and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of Coronavirus impact on a diverse set of Capital One’s multinational peers – from Coronavirus and Discover Financial to impact on competitor American Express. The complete set of coronavirus impact and timing analyses is available here.

 

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