Capital One Lowered to Underperform - Analyst Blog
March 08 2013 - 5:20AM
Zacks
On Mar 6, 2013, we downgraded Capital One Financial
Corp. (COF) to Underperform based on the company’s
lower-than-expected fourth quarter 2012 results and elevated
operating expenses. Moreover, the company has delivered an average
negative surprise of 15.1% over the past 4 quarters.
Why the Downgrade?
On Jan 17, Capital One’s announced its fourth quarter 2012 earnings
of $1.41 per share, which substantially lagged the Zacks Consensus
Estimate of $1.62. Further, net revenue for the reported quarter
stood at $5.62 billion, below the Zacks Consensus Estimate of $5.78
billion.
Estimates over the past 60 days have also been declining with the
Zacks Consensus Estimate for 2013 going down 5.6% to $6.61 per
share. The Zacks Consensus Estimate for 2014 also declined
significantly (down 7.3% to $6.85 per share). With the Zacks
Consensus Estimates for both 2013 and 2014 going down, the company
now has a Zacks Rank #5 (Strong Sell).
Causes of Concern
Increasing operating expenses remain a key concern for Capital One
at this point. Though expense management initiatives have
significantly helped the company offset higher credit losses in the
last few years, operating expenses have been continuously mounting.
In 2012, operating expenses rose roughly 28% from the previous year
to $11.9 billion.
Further, stringent capital, liquidity and leverage ratio
requirements under the financial reform law are expected to
restrict Capital One’s ability to pursue business opportunities and
further increase costs. Also, sluggish economic recovery remains a
drag on its asset quality.
Stocks That Warrant a Look
While we prefer to avoid Capital One shares until we see signs of
improvement in the company's performance, other financial
institutions that are worth considering include –
BankUnited, Inc. (BKU), Fifth Third
Bancorp (FITB)and State Street
Corporation (STT). BankUnited carries a Zacks Rank
#1 (Strong Buy) whereas Fifth Third and State Street carry a Zacks
Rank #2 (Buy).
BANKUNITED INC (BKU): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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