On Dec 3, 2013, we downgraded our long-term recommendation on
Capital One Financial Corp.
) to Neutral from Outperform due to the persistent rise in
operating expenses. However, the company's geographic
diversification and inorganic growth strategy are impressive.
CAPITAL ONE FIN (COF): Free Stock Analysis
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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
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
Other Stocks Worth Considering
Better-ranked financial stocks include
First Interstate Bancsystem Inc.
German American Bancorp Inc.
). All these have a Zacks Rank #1 (Strong Buy).