Is Capital One a smart financial stock to invest in?
Rising interest rates bode well for the financial sector, as higher rates increase its interest income. So, is Capital One Financial (COF) well positioned to take advantage of rising interest rates? Read on for our take.
Capital One Financial Corporation (COF) in McLean, Virginia, operates as a financial services holding company for Capital One Bank (USA) and Capital One, which provides various financial products and services. It operates in three segments: Credit Card; Retail banking; and Commercial Bank. The company manages checking accounts, money market deposits, negotiable withdrawal orders, savings and term deposits. Its lending products include credit card loans, automotive and retail banking loans, commercial and multifamily real estate, and commercial and industrial loans.
Interest rates are rising in the United States to combat high inflation for several decades. The Federal Reserve raised its key rate by 50 basis points yesterday, its biggest rise since 2000. Fed Chairman Jerome Powell said, “Inflation is far too high, and we understand the difficulties it is causing. We are acting quickly to reverse it. A higher interest rate environment bodes well for the financial sector as it helps them increase their interest income. According to a report by Research And Markets, the global financial services market is expected to grow at a 6% CAGR to $28.53 trillion by 2025.
COF stock is down 16.3% over the past nine months and 11.3% over the past year to close the last trading session at $134.30. It is currently trading 24.5% below its 52-week high of $177.95, which it reached on August 13, 2021.
Here is what could influence COF’s performance in the coming months:
In non-GAAP forward P/E terms, the COF of 6.72x is 36.4% below the industry average of 10.57x. And its non-GAAP PEG of 0.08x is 92.5% lower than the industry average of 1.11x. The stock’s forward P/B of 0.91x is 20.6% below the sector average of 1.14x.
COF’s total net income increased 14.9% year-over-year to $8.17 billion for the first quarter ended March 31, 2022. The company’s net interest income increased 9.8% year-over-year to $6.39 billion. Its net income available to common shareholders increased 0.9% sequentially to $2.31 billion. Moreover, its PES came to $5.62, representing a 3.8% sequential increase.
Unfavorable analyst estimates
Analysts expect COF’s EPS for its 2022 and 2023 fiscal years to decline 25.1% and 4.4%, respectively. Additionally, its EPS is expected to decline 6.7% annually over the next five years.
In terms of 12-month net profit margin, the COF of 35.91% is above the industry average of 29.63%. And its 20.49% 12-month return on common stock is 60.9% above the industry average of 12.73%. Additionally, the stock’s 2.19% 12-month Capex/S is above the industry average of 1.55%.
POWR ratings reflect uncertainty
COF has an overall C rating, which equates to a neutral in our POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. COF has a D rating for growth, which is in line with an expected 32.8% year-over-year decline in EPS to $5.12 for the quarter ending June 30, 2022.
COF is ranked #26 out of 50 stocks in the Consumer Financial Services industry. The industry is rated D.
Click here to access COF ratings for Value, Momentum, Stability, Sentiment and Quality.
Although rising interest rates bode well for the financial sector, the COF is currently trading below its 50-day and 200-day moving averages of $134.82 and $151.78, respectively, indicating a downward trend. Additionally, analysts expect its EPS to decline for its 2022 and 2023 fiscal years. Thus, we think it might be wise to wait for a better entry point in the stock.
How Capital One Financial Corporation (COF) works Up to his peers?
Although COF has an overall POWR rating of C, one might consider investing in the following consumer financial services stocks with a B (buy) rating: Atlanticus Holdings Corporation (TRTA), EZCORP, Inc. (EZPW) and 360 DigiTech, Inc. (QFIN).
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COF shares were trading at $132.16 per share Thursday morning, down $2.14 (-1.59%). Year-to-date, the COF is down -8.56%, compared to a -10.74% rise in the benchmark S&P 500 over the same period.
Ever since he was in elementary school, Dipanjan had been interested in the stock market. This enabled him to obtain a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan is particularly interested in reading and analyzing emerging trends in financial markets.