Where Is Capital One Stock Headed?

+45.64%
Upside
115
Market
168
Trefis
COF: Capital One Financial logo
COF
Capital One Financial

Capital One’s stock (NYSE: COF) has lost approximately 27% YTD, as compared to the 20% drop in the S&P500 over the same period. Notably, the stock market has witnessed selling pressure over the recent months due to record-high inflation figures, aggressive interest rate hikes, and the Russia-Ukraine crisis. That said, at its current price of $106 per share, the stock is trading 37% below its fair value of $168 – Trefis’ estimate for Capital One’s valuation

The bank announced on 27 June that it has successfully cleared the Federal Reserve’s 2022 Comprehensive Capital Analysis and Review (“CCAR”) stress test process. The exercise is conducted every year by the Fed to assess, regulate, and supervise large banks and financial institutions. While the company managed to pass the stress test, its Stress Capital Buffer Requirement (“SCB”) increased from 2.5% to 3.1% (effective October 1, 2022).

The credit card giant posted better than expected results in the first quarter of 2022. It benefited from higher interest-earning assets and a recovery in consumer activity levels. Moving forward, we expect the net interest margin to improve, thanks to the increase in benchmark interest rates by the Fed. It will likely help the net interest income. However, the current macroeconomic environment has the potential to hurt the consumer activity levels, negatively impacting the noninterest income. Overall, the consensus estimates for revenues and earnings in Q2 are around $8.28 billion and $5.13, respectively.

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The company’s total revenues were around $30.3 billion in 2021 – up 7% y-o-y. We forecast Capital One revenues to touch $33.3 billion in FY2022. Additionally, COF’s net income margin is likely to decrease from 39.3% to 23.6% in the year, leading to an adjusted net income of $7.9 billion and an annual EPS of $19.37. This coupled with a P/E multiple of just below 9x will lead to the valuation of $168.

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

With inflation rising and the Fed raising interest rates, Capital One has fallen 27% this year. Can it drop more? See how low can Capital One stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

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 Jun 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 COF Return -17% -27% 21%
 S&P 500 Return -8% -20% 71%
 Trefis Multi-Strategy Portfolio -7% -25% 196%

[1] Month-to-date and year-to-date as of 6/30/2022
[2] Cumulative total returns since the end of 2016

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