On Apr 25, 2013, we upgraded our recommendation on
Capital One Financial Corp
) to Neutral from Underperform. Our decision rests on Capital
One's better-than-expected first quarter earnings. However,
rising expenses and weak demand for loans are causes of concern.
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Why the Upgrade?
Capital One's first-quarter 2013 earnings of $1.79 per share came
in nearly 27% above the prior-quarter earnings of $1.41. The
results benefited from a decline in operating expenses, partially
offset by lower top line. Moreover, strong profitability and
capital ratios as well as continued improvement in asset quality
were the other highlights for the quarter.
The Zacks Consensus Estimate for 2013 has gone up 0.6% to $6.53
per share and it inched up just 0.1% to $6.73 per share for 2014.
With the Zacks Consensus Estimates for both 2013 and 2014
modestly going up, Capital One currently carries a Zacks Rank #3
The Federal Reserve's approval of Capital One's capital plan
under the Comprehensive Capital Analysis and Review (CCAR) for a
500% hike in its dividend to $0.30 per share further endorses the
company's strong capital position. Further, Capital One's
geographically diversified loan portfolio, acquisition spree and
solid credit card businesses are expected to improve its
financials going forward.
However, increased operating expenses, immense pressure on credit
quality and stringent capital, liquidity and leverage ratio
requirements under the financial reform law are expected to
restrict Capital One's ability to pursue business opportunities.
Other Stocks to Consider
Banking stocks that are performing better than Capital One and
worth a look include
State Street Corp.
Fifth Third Bancorp
Credit Acceptance Corp
). All these carry a Zacks Rank #2 (Buy).