Capital One Down to Neutral - Analyst Blog


On Dec 3, 2013, we downgraded our long-term recommendation on Capital One Financial Corp. ( COF ) to Neutral from Outperform due to the persistent rise in operating expenses. However, the company's geographic diversification and inorganic growth strategy are impressive.

Why Downgrade?

Rising operating expenses remain a key concern for Capital One at present. Though expense management initiatives have enabled the company to offset higher credit losses over the last few years, operating expense continue to increase. Going forward, we expect expenses to climb further due to costs related to the recent acquisitions.

Moreover, despite improvement over the past few quarters, we expect Capital One's credit quality to be under pressure owing to the protracted economic recovery. Further, exposure to the commercial real estate market, weak demand for loans and the new stringent regulations will likely weigh on the company's financials in the quarters ahead.

However, Capital One's continued capital deployment activities make it an attractive pick for yield-seeking investors. Additionally, given the continuous expansion of its global footprint, the company's geographically diversified loan portfolio remains one of its strengths. Furthermore, the resilience shown by most of Capital One's businesses will expectedly support its financials going forward.

Notably, the Zacks Consensus Estimate for 2013 rose 1.0% to $7.05 per share over the last 30 days. Further, for 2014, the Zacks Consensus Estimate marginally increased to $6.92 per share over the same time period. Hence, Capital One now carries a Zacks Rank #3 (Hold).

Other Stocks Worth Considering

Better-ranked financial stocks include First Interstate Bancsystem Inc. ( FIBK ), German American Bancorp Inc. ( GABC ) and PrivateBancorp, Inc. ( PVTB ). All these have a Zacks Rank #1 (Strong Buy).

CAPITAL ONE FIN (COF): Free Stock Analysis Report

FIRST INTST MT (FIBK): Free Stock Analysis Report

GERMAN AMER BCP (GABC): Free Stock Analysis Report

PRIVATEBANCORP (PVTB): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: COF , FIBK , GABC , PVTB

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