Solid liquidity position, steady loan growth, and impressive online banking and credit card businesses of Capital One Financial Corporation (COF - Free Report) will continue to support profitability. Further, the company’s efforts to boost its operating efficiency through strategic acquisitions and divestitures seem impressive.
Over the past 30 days, the Zacks Consensus Estimate for 2019 earnings has been revised marginally upward. Thus, the stock carries a Zacks Rank #2 (Buy), currently.
Moreover, shares of the company have rallied 13.5%, so far this year, underperforming the industry’s growth of 25.2%. Given the upbeat trends and a favorable Zacks Rank, the stock is anticipated to rally further in the days ahead.
5 Reasons Why Capital One is a Solid Pick
Revenue growth: The top line witnessed a five-year CAGR of 5.9% (2014-2018). Strength in online banking and credit card businesses, and rise in demand for consumer loans will continue to boost top-line growth in the near term. Also, opportunistic acquisitions will provide support. Further, its projected sales growth rate of 2.8% for 2019 and 4.8% for 2020 indicates continuation of the momentum.
Earnings strength: Over the past three to five years, earnings of Capital One witnessed 9.2% growth. This uptrend is anticipated to continue as the company’s earnings are projected to be up 5% and 2.8% in 2019 and 2020, respectively.
Also, Capital One has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 3.1%.
Further, the company’s long-term (three to five years) expected earnings growth rate of 8% promises rewards for shareholders.
Restructuring efforts: Capital One continues with its restructuring efforts, in a bid to battle economic challenges. The company has sold its asset management business, trusts, retail brokerage account and a mortgage unit, over the past year.
Additionally, Capital One undertakes opportunistic acquisitions, which have been supporting its profitability. All these initiatives will likely help strengthen the company’s financials.
Sustainable capital-deployment plan: Capital One’s capital-deployment plan looks impressive. Following the Fed’s approval of its 2019 capital plan, the company will maintain its quarterly dividend at the current level. Furthemore, its capital plan includes authorization to buy back shares worth $2.2 billion. Hence, given the strong balance-sheet position and improving earnings, its capital-deployment plan appears sustainable.
Stock seems undervalued: Shares of Capital One look undervalued with respect to its price/book and price/sales ratios. The company has a P/B ratio of 0.71, which is below the industry average of 1.18. Also, its P/S ratio, which is currently 1.18, is lower than the industry average of 1.48.
Additionally, the stock has a Value Score of A. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Other Key Picks
Encore Capital Group, Inc. (ECPG - Free Report) has been witnessing upward earnings estimate revisions for 2019 over the past 30 days. Moreover, this Zacks #1 Ranked stock has surged 55.9%, year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Enova International Inc.’s (ENVA - Free Report) 2019 earnings estimate remained unchanged, over the past 30 days. Further, the company’s shares have gained 23.5% in the year-to-date period. At present, it flaunts a Zacks Rank of 1.
Navient Corporation’s (NAVI - Free Report) earnings estimate for the ongoing year remained unrevised over the past month. Additionally, the stock has appreciated 45.6%, so far this year. It currently carries a Zacks Rank #2.
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