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Analyst Blog

On Oct 4, 2013, we upgraded our long-term recommendation on Capital One Financial Corp. (COF - Analyst Report) to Outperform from Neutral. This was based on the company’s enhanced capital deployment plans.

The Rationale Behind the Upgrade

Capital One’s continued capital deployment activities make it an attractive pick for yield-seeking investors. Given its strong capital and balance sheet position, the company will continue boosting shareholders’ value going forward. Further, over the past few years, many strategic decisions by Capital One helped it to counter economic challenges. The company prudently diversified into other areas of consumer banking by focusing on the healthy businesses while largely avoiding relatively less profitable ventures such as mortgages.

Additionally, Capital One remained strong with respect to its credit card businesses. The U.S. Card business continues to deliver strong returns on a risk-adjusted basis, with a consistent rise in revenues.

The third-quarter Earnings ESP for the company is +7.51%. This, along with its Zacks Rank #2 (Buy), makes us confident of a positive earnings surprise. The company’s second-quarter 2013 earnings substantially surpassed the Zacks Consensus Estimate.

Moreover, the Zacks Consensus Estimate for 2013 advanced 3.8% to $6.82 per share over the last 90 days. Further, for 2014, the Zacks Consensus Estimate increased 1.6% to $6.80 per share over the same time period.

Other Stocks to Consider

Apart from Capital One, other financial institutions worth considering include Regional Management Corp. (RM - Snapshot Report), World Acceptance Corp. (WRLD - Snapshot Report) and Cash America International, Inc. (CSH - Snapshot Report). While Regional Management Corp. and World Acceptance Corp. carry a Zacks Rank #1 (Strong Buy), Cash America International has the same Zacks Rank as Capital One.

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