On Jun 7, 2013, we reiterated our long-term recommendation on
Capital One Financial Corp
) at Neutral based on the continued synergies from its geographic
diversification, recent acquisitions and solid first-quarter 2013
earnings. However, we remain concerned about the company's
considerable exposure to the real estate markets.
Why the Neutral Stance?
Capital One's first-quarter 2013 earnings of $1.79 per share
substantially surpassed the Zacks Consensus Estimate of $1.63.
Also, this was nearly 27% above the prior-quarter earnings of
$1.41. Better-than-expected results benefited from a fall in
operating expenses, partially offset by a decline in revenues.
Moreover, strong profitability and capital ratios as well as
continuously improving asset quality were the other highlights of
Following the first-quarter 2013 earnings, the Zacks Consensus
Estimate went up by 0.6% to $6.54 per share over the last 60
days. However, for 2014, the Zacks Consensus Estimate went down
by 1.5% to $6.66 per share over the same time frame. The company
currently has a Zacks Rank #3 (Hold).
In May, 2013, Capital One increased its dividend by 500% to 30
cents per share following the approval of its capital plan in Mar
2013. Moreover, Capital One has a geographically diversified loan
portfolio due its series of acquisitions that resulted in its
entry into new geographic markets.
On the other hand, despite management's initiatives to reduce
costs, Capital One has been experiencing a continuous rise in
expenses. Moreover, the company's credit quality is expected to
remain under pressure due to the sluggish economic recovery.
Additionally, stringent capital, liquidity and leverage ratio
requirements under the financial reform law are apprehended to
restrict Capital One's ability to pursue business opportunities.
Other Banks to Consider
Some better performing banks include
Enterprise Financial Services Corp
Old Second Bancorp Inc
). All these carry a Zacks Rank #1 (Strong Buy).
CAPITAL ONE FIN (COF): Free Stock Analysis
ENTERPRISE FINL (EFSC): Free Stock Analysis
OLD SECOND BCP (OSBC): Free Stock Analysis
PRIVATEBANCORP (PVTB): Free Stock Analysis
To read this article on Zacks.com click here.