Capital One (
) is one of the largest banks in the U.S. and competes
with JP Morgan (
), Bank of America (
), Citigroup (
(DFS) in the credit card business. Capital One's card business
earns revenue in the form of interest on outstanding credit card
balances as well as fee-based charges.
Capital One is the 4th largest issuer of credit cards in the
U.S. with around $65 billion in outstanding credit card loans. The
company offers various cards for personal, small business and
corporate use. Capital One's credit card business accounts for 36%
our $61.26 price estimate
for Capital One, which stands nearly 30% ahead of market price.
Discover Financial Dominates the Student Credit Card
Competitor Discover Financial has a dominant position in the
growing student credit card market. It already offers various
student credit cards with competitive rates and attractive rewards.
Discover is actually the preferred lender for over 750 schools
across the United States, and the recent acquisition of Citigroup's
Student Loan Corp further solidifies Discover's position in this
Capital One Makes a Move
But Capital One is making moves that could put it in position to
gain ground in the student credit card market. Capital One recently
unveiled its new 'Journey Student Rewards Credit Card' for college
students. The card offers 1% cash back on purchases and an
additional 25% bonus on the cash earned each month for paying bills
on time. A key draw for students is that the card comes with no
annual fee and relatively low APR of 19.8%. The card also comes
with a low initial credit limit and aims to familiarize
cardholders with how credit works..
See our full analysis and $61.26 price estimate
for Capital One
Growth in Purchase Volumes on the Horizon
Capital One saw a decline in credit card business during the
recent financial crisis when the purchase volume on its credit
cards dropped from $114 billion in 2008 to $102 billion in 2009.
Fewer new accounts and an overall depressed retail sales
environment were the culprits of the 10% decline.
However, the introduction of new student credit cards should
help put Capital One on the road to recovery. With economic
recovery gaining momentum in recent quarters, we anticipate a surge
in purchase volumes. We estimate that Capital One's credit card
purchase volume will grow steadily from about $107 billion in 2010
to $141 billion by the end of our forecast period.