Capital One’s stock (NYSE: COF) has gained 6% Year-to-Date (YTD), lagging behind the S&P 500’s 14% increase over the same period. In contrast, Capital One’s competitor, Discover Financial (NYSE: DFS), has seen a 15% YTD increase. Despite this, COF stock is currently trading 8% below its estimated fair value of $150 per share, according to Trefis’ valuation.
Although COF stock has shown strong gains of 40% from early January 2021 to around $140 now, it has not been a consistent rise. The stock saw returns of 47% in 2021, -36% in 2022, and 41% in 2023, underperforming the S&P 500 in 2022. Beating the S&P 500 consistently has been challenging for individual stocks in recent years, including heavyweights in the Financials sector like JPM, V, and MA, as well as popular megacap stars like GOOG, TSLA, and MSFT. In contrast, Trefis High-Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period.
Capital One reported mixed results in the first quarter of 2024, with total revenues increasing by 6% year-over-year (y-o-y) to $9.4 billion. This was driven by a 4% rise in net interest income and an 11% increase in noninterest revenues. The company’s provisions for credit losses decreased by 4% y-o-y, and total non-interest expenses as a percentage of revenues also decreased. Adjusted net income rose by 35% y-o-y to $1.2 billion.
In FY 2023, COF saw a 7% y-o-y increase in total revenues to $36.8 billion, with growth in both net interest income and non-interest revenues. However, a significant spike in provisions for credit losses offset these gains, reducing adjusted net income by 35% y-o-y to $4.6 billion. Looking ahead to Q2, analysts predict revenues of $9.54 billion and earnings of $3.40, with full-year revenues estimated to reach $38.46 billion and adjusted net income of $4.96 billion, resulting in a valuation of $150 for COF.
With the current uncertain macroeconomic environment, including high oil prices and elevated interest rates, there is speculation about whether Capital One could face challenges similar to those experienced in 2022 and underperform the S&P 500 in the next 12 months. However, Trefis’ analysis suggests that Capital One’s stock may see a strong jump in performance, potentially reaching its fair value of $150. Overall, the company’s financial results and market performance indicate a mix of challenges and opportunities for investors considering COF stock.
