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Capital One Upgraded to “Outperform” at FBR Capital (COF)

Credit card issuer Capital One Financial Corp. ( COF ) on Friday caught a big upgrade from analysts at FBR Capital Markets.

The firm said it boosted its rating on COF from "Market Perform" to "Outperform" while raising its price target from $45 to $53. That new target implies a 28% upside to the stock's Thursday closing price of $41.27.

An FBR analyst commented, "We are upgrading shares of COF and revising our FY11 EPS estimate to $5.30 from $5.60 and our FY12 EPS estimate to $5.20 from $5.25. The reduction in FY11 EPS reflects a lower projected reserve release, as COF has released a substantial amount of reserves in 2010 but remains substantially above consensus estimates. We believe consensus estimates are too low (FY11 consensus=$4.69) and should increase over the next several quarters. In addition to our expectation of increasing consensus estimates, we believe COF is attractively valued at 7.9x our FY11 EPS estimate, a discount to its five-year median P/E ratio of 10.5, and 1.6x TBV, reflecting what we view as excessive investor discounting for potential mortgage reps and warranties liability; our updated analysis indicates COF has sufficiently reserved for mortgage repurchases."

Capital One shares rose 67 cents, or +1.6%, in premarket trading Friday.

The Bottom Line

Shares of Capital One Financial ( COF ) have a .48% dividend yield, based on last night's closing stock price of $41.27. The stock has technical support in the $36-$38 price area. If the shares can firm up, we see overhead resistance around the $44-$46 price levels.

Capital One Financial Corp. ( COF ) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .

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

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

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