Capital One Financial Corp Valuation – January 2019 $COF

Company Profile (excerpt from Reuters): Capital One Financial Corporation, incorporated on July 21, 1994, is a diversified financial services holding company. The Company, along with its subsidiaries, offers a range of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. The Company’s segments include Credit Card, Consumer Banking, Commercial Banking and Other. The Credit Card segment consists of its domestic consumer and small business card lending, and the international card lending businesses in Canada and the United Kingdom. The Consumer Banking segment consists of its branch-based lending and deposit gathering activities for consumers and small businesses, national deposit gathering, national auto lending and consumer home loan lending and servicing activities. The Commercial Banking consists of its lending, deposit gathering and treasury management services to commercial real estate, and commercial and industrial customers. The Other segment includes management of its corporate investment portfolio and asset/liability management.

Downloadable PDF version of this valuation:

ModernGraham Valuation of COF – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $37,997,751,087 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 61.62% Pass
5. Moderate PEmg Ratio PEmg < 20 10.41 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.75 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.60
MG Growth Estimate 1.52%
MG Value $87.73
Opinion Fairly Valued
MG Grade A-
MG Value based on 3% Growth $110.16
MG Value based on 0% Growth $64.58
Market Implied Growth Rate 0.95%
Current Price $78.94
% of Intrinsic Value 89.98%

Capital One Financial Corp. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $6.9 in 2014 to an estimated $7.6 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 0.95% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Capital One Financial Corp. revealed the company was trading below its Graham Number of $161.29. The company pays a dividend of $1.6 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 10.39, which was below the industry average of 18, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Capital One Financial Corp. fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $161.29
PEmg 10.39
PB Ratio 0.75
Dividend Yield 2.03%
TTM Dividend $1.60
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $51,821,000,000
Total Assets $362,909,000,000
Intangible Assets $14,513,000,000
Total Liabilities $312,271,000,000
Shares Outstanding (Diluted Average) 480,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.52
Dec2017 $3.49
Dec2016 $6.89
Dec2015 $7.07
Dec2014 $7.59
Dec2013 $6.89
Dec2012 $6.11
Dec2011 $6.80
Dec2010 $6.01
Dec2009 $0.74
Dec2008 -$0.21
Dec2007 $3.97
Dec2006 $7.62
Dec2005 $6.73
Dec2004 $6.21
Dec2003 $4.85
Dec2002 $3.93
Dec2001 $2.91
Dec2000 $2.24
Dec1999 $1.72
Dec1998 $1.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.60
Dec2017 $5.89
Dec2016 $7.03
Dec2015 $7.03
Dec2014 $6.90
Dec2013 $6.14
Dec2012 $5.14
Dec2011 $4.25
Dec2010 $3.20
Dec2009 $2.45
Dec2008 $3.82
Dec2007 $5.85
Dec2006 $6.49
Dec2005 $5.59
Dec2004 $4.69
Dec2003 $3.66
Dec2002 $2.85

Recommended Reading:

Other ModernGraham posts about the company

Capital One Financial Corp Valuation – March 2018 $COF
Benjamin Graham Would Love These 10 Companies Today
9 Best Stocks For Value Investors This Week – 7/8/16
Best Stocks Below Their Graham Number – August 2017
Best Stocks Below Their Graham Number – January 2017

Other ModernGraham posts about related companies

Total System Services Inc Valuation – December 2018 $TSS
Goldman Sachs Group Inc Valuation – November 2018 $GS
KKR & Co Inc Valuation – September 2018 $KKR
CorVel Corp Valuation – August 2018 $CRVL
Jones Lang LaSalle Inc Valuation – August 2018 $JLL
Investment Technology Group Inc Valuation – July 2018 $ITG
Stifel Financial Corp Valuation – July 2018 $SF
CI Financial Corp Valuation – July 2018 $TSE:CIX
INTL FCStone Inc Valuation – July 2018 $INTL
SEI Investments Co Valuation – July 2018 $SEIC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Capital One Financial Corp Valuation – March 2018 $COF

Company Profile (obtained from Marketwatch): Capital One Financial Corp. is a financial holding company, which engages in the provision of financial products and services. It operates through the following segments: Credit Card, Consumer Banking, and Commercial Banking. The Credit Card segment offers domestic consumer and small business card lending, and international card lending businesses. The Consumer Banking segment consists of branch-based lending and deposit gathering activities for consumers and small businesses. The Commercial Banking segment comprises of lending, deposit gathering and treasury management services to commercial real estate and commercial and industrial customers. The company was founded by Richard D. Fairbank on July 21, 1994 and is headquartered in McLean, VA.

COF Chart

COF data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of COF – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $46,884,456,908 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 45.39% Pass
5. Moderate PEmg Ratio PEmg < 20 14.09 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.97 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.86
MG Growth Estimate -0.07%
MG Value $57.37
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $99.53
MG Value based on 0% Growth $58.34
Market Implied Growth Rate 2.80%
Current Price $96.72
% of Intrinsic Value 168.59%

Capital One Financial Corp. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $6.9 in 2014 to an estimated $6.86 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Capital One Financial Corp. revealed the company was trading below its Graham Number of $145.08. The company pays a dividend of $1.6 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 14.09, which was below the industry average of 21.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Capital One Financial Corp. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Graham Number $145.08
PEmg 14.09
PB Ratio 0.97
Dividend Yield 1.65%
TTM Dividend $1.60
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $59,705,000,000
Total Assets $365,693,000,000
Intangible Assets $14,533,000,000
Total Liabilities $316,963,000,000
Shares Outstanding (Diluted Average) 490,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.32
Dec2017 $3.49
Dec2016 $6.89
Dec2015 $7.07
Dec2014 $7.59
Dec2013 $6.89
Dec2012 $6.11
Dec2011 $6.80
Dec2010 $6.01
Dec2009 $0.74
Dec2008 -$0.21
Dec2007 $3.97
Dec2006 $7.62
Dec2005 $6.73
Dec2004 $6.21
Dec2003 $4.85
Dec2002 $3.93
Dec2001 $2.91
Dec2000 $2.24
Dec1999 $1.72
Dec1998 $1.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.86
Dec2017 $5.89
Dec2016 $7.03
Dec2015 $7.03
Dec2014 $6.90
Dec2013 $6.14
Dec2012 $5.14
Dec2011 $4.25
Dec2010 $3.20
Dec2009 $2.45
Dec2008 $3.82
Dec2007 $5.85
Dec2006 $6.49
Dec2005 $5.59
Dec2004 $4.69
Dec2003 $3.66
Dec2002 $2.85

Recommended Reading:

Other ModernGraham posts about the company

Capital One Financial Corp Valuation – July 2016 $COF
Stocks Trading Below Their Graham Number – June 2016
10 Low PE Stocks for the Enterprising Investor – June 2016
Stocks Trading Below Their Graham Number – May 2016
10 Low PE Stocks for the Enterprising Investor – May 2016

Other ModernGraham posts about related companies

Total System Services Inc Valuation – February 2018 $TSS
Visa Inc Valuation – February 2018 $V
Goldman Sachs Group Inc Valuation – February 2018 $GS
American Express Co. Valuation – February 2018 $AXP
Encore Capital Group Inc Valuation – Initial Coverage $ECPG
T.Rowe Price Group Inc Valuation – July 2017 $TROW
T.Rowe Price Group Inc Valuation – June 2017 $TROW
Tricon Capital Group Inc Valuation – Initial Coverage $TSE:TCN
Moody’s Corporation Valuation – March 2017 $MCO
KKR & Co Ltd Valuation – March 2017 $KKR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Capital One Financial Corp Valuation – July 2016 $COF

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Capital One Financial Corp (COF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Capital One Financial Corporation is a financial services holding company. The Company offers a range of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. The Company’s segments include Credit Card, which consists of its domestic consumer and small business card lending, and the international card lending businesses in Canada and the United Kingdom; Consumer Banking, which consists of its branch-based lending and deposit gathering activities for consumers and small businesses, national deposit gathering, national auto lending and consumer home loan lending and servicing activities; Commercial Banking, which consists of its lending, deposit gathering and treasury management services to commercial real estate, and commercial and industrial customers, and Other, which includes management of its corporate investment portfolio and asset/liability management.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of COF – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $30,334,738,162 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 384.67% Pass
5. Moderate PEmg Ratio PEmg < 20 8.60 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.68 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

COF value chart July 2016

EPSmg $7.13
MG Growth Estimate 5.74%
MG Value $142.36
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $103.32
MG Value based on 0% Growth $60.57
Market Implied Growth Rate 0.05%
Current Price $61.28
% of Intrinsic Value 43.04%

Capital One Financial Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.15 in 2012 to an estimated $7.13 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.05% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Capital One Financial Corp. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

COF charts July 2016

Graham Number $122.14
PEmg 8.60
PB Ratio 0.68
Dividend Yield 2.61%
TTM Dividend $1.60
Number of Consecutive Years of Dividend Growth 4

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-Term Debt $49,580,000,000
Total Assets $330,346,000,000
Intangible Assets $14,492,000,000
Total Liabilities $282,639,000,000
Shares Outstanding (Diluted Average) 528,000,000

Earnings Per Share History

Next Fiscal Year Estimate $7.15
Dec2015 $7.07
Dec2014 $7.59
Dec2013 $6.96
Dec2012 $6.16
Dec2011 $6.80
Dec2010 $6.01
Dec2009 $0.74
Dec2008 -$0.21
Dec2007 $3.97
Dec2006 $7.62
Dec2005 $6.73
Dec2004 $6.21
Dec2003 $4.85
Dec2002 $3.93
Dec2001 $2.91
Dec2000 $2.24
Dec1999 $1.72
Dec1998 $1.32
Dec1997 $0.93
Dec1996 $0.77

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.13
Dec2015 $7.05
Dec2014 $6.93
Dec2013 $6.17
Dec2012 $5.15
Dec2011 $4.25
Dec2010 $3.20
Dec2009 $2.45
Dec2008 $3.82
Dec2007 $5.85
Dec2006 $6.49
Dec2005 $5.59
Dec2004 $4.69
Dec2003 $3.66
Dec2002 $2.85
Dec2001 $2.15
Dec2000 $1.64

Recommended Reading:

Other ModernGraham posts about the company

Stocks Trading Below Their Graham Number – June 2016
10 Low PE Stocks for the Enterprising Investor – June 2016
Stocks Trading Below Their Graham Number – May 2016
10 Low PE Stocks for the Enterprising Investor – May 2016
Stocks Trading Below Their Graham Number – March 2016

Other ModernGraham posts about related companies

Fifth Third Bancorp Valuation – July 2016 $FITB
Zions Bancorp Valuation – June 2016 $ZION
Regions Financial Corp – June 2016 $RF
Wells Fargo & Co Valuation – June 2016 $WFC
Huntington Bancshares Inc Valuation – June 2016 $HBAN
State Street Corp Valuation – June 2016 $STT
KeyCorp Valuation – June 2016 $KEY
PNC Financial Services Group Inc Valuation – June 2016 $PNC
People’s United Financial Inc Valuation – June 2016 $PBCT
BB&T Corporation Valuation – May 2016 $BBT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Capital One Financial Corp Valuation – January 2016 Update $COF

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Capital One Financial Corp (COF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Capital One Financial Corp is a diversified financial services holding company. The Company and its subsidiaries offer a range of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. In addition to bank lending, treasury management and depository services, the Company offers credit and debit card products, auto loans and mortgage banking in markets across the United States. The Company operates three primary business segments: Credit Card, Consumer Banking and Commercial Banking. The Company’s principal subsidiaries include the following: Capital One Bank (USA), National Association (COBNA), which offers credit and debit card products, other lending products and deposit products, and Capital One, National Association (CONA), which offers a range of banking products and financial services to consumers, small businesses and commercial clients.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of COF – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $33,931,662,733 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 388.96% Pass
5. Moderate PEmg Ratio PEmg < 20 9.05 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.73 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

COF value Chart January 2016

EPSmg $7.17
MG Growth Estimate 5.87%
MG Value $145.17
Opinion Undervalued
MG Value based on 3% Growth $103.98
MG Value based on 0% Growth $60.95
Market Implied Growth Rate 0.28%
Current Price $64.92
% of Intrinsic Value 44.72%

Capital One Financial Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years along with the inconsistent dividend record.  The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.15 in 2012 to an estimated $7.17 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.28% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Capital One Financial Corp (COF)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

COF Charts January 2016

Graham Number $119.67
PEmg 9.05
PB Ratio 0.73
Dividend Yield 2.16%
Number of Consecutive Years of Dividend Growth 1

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Long-Term Debt $58,134,000,000
Total Assets $334,048,000,000
Intangible Assets $14,480,000,000
Total Liabilities $286,764,000,000
Shares Outstanding (Diluted Average) 534,910,000

Earnings Per Share History

Next Fiscal Year Estimate $7.20
Dec2015 $7.21
Dec2014 $7.59
Dec2013 $6.89
Dec2012 $6.16
Dec2011 $6.80
Dec2010 $6.01
Dec2009 $0.74
Dec2008 -$0.21
Dec2007 $3.97
Dec2006 $7.62
Dec2005 $6.73
Dec2004 $6.21
Dec2003 $4.85
Dec2002 $3.93
Dec2001 $2.91
Dec2000 $2.24
Dec1999 $1.72
Dec1998 $1.32
Dec1997 $0.93
Dec1996 $0.77

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.17
Dec2015 $7.08
Dec2014 $6.91
Dec2013 $6.15
Dec2012 $5.15
Dec2011 $4.25
Dec2010 $3.20
Dec2009 $2.45
Dec2008 $3.82
Dec2007 $5.85
Dec2006 $6.49
Dec2005 $5.59
Dec2004 $4.69
Dec2003 $3.66
Dec2002 $2.85
Dec2001 $2.15
Dec2000 $1.65

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – January 2016
Capital One Financial Corporation Analysis – August 2015 Update $COF
10 Low PE Stocks for the Enterprising Investor – August 2015
The 12 Best Stocks For Value Investors This Week – 5/30/15
Capital One Financial Stock Analysis – May 2015 Quarterly Update $COF

Other ModernGraham posts about related companies

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Invesco Ltd Valuation – January 2016 Update $IVZ
Legg Mason Inc Valuation – December 2015 Update $LM
Visa Inc Valuation – November 2015 Update $V
Ameriprise Financial Inc. Valuation – November 2015 Update $AMP
BlackRock Inc. Valuation – November 2015 Update $BLK
Goldman Sachs Group Inc. Valuation – November 2015 Update $GS
American Express Company Valuation – October 2015 Update $AXP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Capital One Financial Corporation Analysis – August 2015 Update $COF

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

What follows is a specific look at how Capital One Financial (COF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Capital One Financial Corp is a diversified financial services holding company. The Company and its subsidiaries offer a range of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. In addition to bank lending, treasury management and depository services, the Company offers credit and debit card products, auto loans and mortgage banking in markets across the United States. The Company operates three primary business segments: Credit Card, Consumer Banking and Commercial Banking. The Company’s principal subsidiaries include the following: Capital One Bank (USA), National Association (COBNA), which offers credit and debit card products, other lending products and deposit products, and Capital One, National Association (CONA), which offers a range of banking products and financial services to consumers, small businesses and commercial clients.
[level-free]

To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of COF – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
5. Moderate PEmg Ratio PEmg < 20 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 6.96
MG Growth Estimate 9.53%
MG Value $191.77
Opinion Undervalued
MG Value based on 3% Growth $100.88
MG Value based on 0% Growth $59.14
Market Implied Growth Rate 1.35%
Current Price $77.98
% of Intrinsic Value 40.66%

Capital One Financial Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.25 in 2011 to an estimated $6.96 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.35% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Capital One Financial (COF)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

COF Charts August 2015

Graham Number $113.72
PEmg 11.21
PB Ratio 0.92
Dividend Yield 1.67%
Number of Consecutive Years of Dividend Growth 3

 

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Most Recent Balance Sheet Figures

Long-Term Debt $43,878,000,000
Total Assets $310,510,000,000
Intangible Assets $13,984,000,000
Total Liabilities $263,851,000,000
Shares Outstanding (Diluted Average) 552,000,000

Earnings Per Share History

Next Fiscal Year Estimate $6.80
Dec14 $7.59
Dec13 $6.96
Dec12 $6.16
Dec11 $6.80
Dec10 $6.01
Dec09 $0.74
Dec08 -$0.21
Dec07 $3.97
Dec06 $7.62
Dec05 $6.73
Dec04 $6.21
Dec03 $4.85
Dec02 $3.93
Dec01 $2.91
Dec00 $2.24
Dec99 $1.72
Dec98 $1.32
Dec97 $0.93
Dec96 $0.77
Dec95 $0.64

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.96
Dec14 $6.93
Dec13 $6.17
Dec12 $5.15
Dec11 $4.25
Dec10 $3.20
Dec09 $2.45
Dec08 $3.82
Dec07 $5.85
Dec06 $6.49
Dec05 $5.59
Dec04 $4.69
Dec03 $3.66
Dec02 $2.85
Dec01 $2.15
Dec00 $1.64
Dec99 $1.26

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – August 2015
The 12 Best Stocks For Value Investors This Week – 5/30/15
Capital One Financial Stock Analysis – May 2015 Quarterly Update $COF
The Best Companies of the Financial Services Industry – May 2015
10 Companies Benjamin Graham Would Invest In Today – April 2015

Other ModernGraham posts about related companies

Affiliated Managers Group Analysis – Initial Coverage $AMG
Visa Inc. Analysis – August 2015 Update $V
Ameriprise Financial Inc. Analysis – August 2015 Update $AMP
SLM Corporation Analysis – August 2015 Update $SLM
Western Union Company Analysis – 2015 Update $WU
American Express Company Analysis – August 2015 Update $AXP
Main Street Capital Corporation Analysis – Initial Coverage $MAIN
BlackRock Inc. Analysis – July 2015 Update $BLK
Navient Corporation Analysis – Initial Coverage $NAVI
KKR & Co. LP Analysis – Initial Coverage $KKR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please review our detailed disclaimer.

Capital One Financial Stock Analysis – May 2015 Quarterly Update $COF

500px-Capital_One_Financial_logo.svgIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a Capital One Financial stock analysis giving a specific look at how Capital One Financial (COF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Capital One Financial Corporation is a diversified financial services holding company with banking and non-banking subsidiaries. The Company and its subsidiaries offer a range of financial products and services to consumers, small businesses and commercial clients through branches, the internet and other distribution channels. As of September 30, 2014, its principal subsidiaries included: Capital One Bank (USA), National Association (COBNA), which offers credit and debit card products, other lending products and deposit products; and Capital One, National Association (CONA), which offers a spectrum of banking products and financial services to consumers, small businesses and commercial clients. The Company’s principal operations are organized for management reporting purposes into three primary business segments, which are defined primarily based on the products and services provided or the type of customer served: Credit Card, Consumer Banking and Commercial Banking.

Defensive Investor – must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $84.21
MG Value $206.06
MG Opinion Undervalued
Value Based on 3% Growth $103.54
Value Based on 0% Growth $60.70
Market Implied Growth Rate 1.65%
PEmg 11.79
PB Ratio 1.03

Balance Sheet – March 2015

Total Debt $40,096,000,000
Total Assets $306,224,000,000
Intangible Assets $13,978,000,000
Total Liabilities $260,494,000,000
Outstanding Shares 557,200,000

Earnings Per Share

2015 (estimate) $7.35
2014 $7.59
2013 $6.96
2012 $6.16
2011 $6.80
2010 $6.01
2009 $0.74
2008 -$0.21
2007 $3.97
2006 $7.62
2005 $6.73

Earnings Per Share – ModernGraham 

2015 (estimate) $7.14
2014 $6.93
2013 $6.17
2012 $5.15
2011 $4.25
2010 $3.20

Dividend History

Conclusion

Capital One qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability over the last ten years, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $4.25 in 2011 to an estimated $7.14 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 1.65% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Capital One Financial (COF)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any of the companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Capital One Financial Quarterly Valuation – January 2015 $COF

500px-Capital_One_Financial_logo.svgIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Capital One Financial (COF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Capital One Financial Corporation is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries offer an array of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. As of December 31, 2012, the Company’s principal subsidiaries included Capital One Bank (USA), National Association (COBN), which offers credit and debit card products, other lending products and deposit products, and Capital One, National Association (CONA), which offers a spectrum of banking products and financial services to consumers, small businesses and commercial clients. On February 17, 2012, the Company acquired ING Direct business in the United States (ING Direct) from ING Groep N.V., ING Bank N.V., ING Direct N.V. and ING Direct Bancorp. In November 2013, Capital One Financial Corp acquired Beech Street Capital LLC.

Defensive Investor – must pass all 6 of the following tests: Score = 4/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $77.60
MG Value $266.63
MG Opinion Undervalued
Value Based on 3% Growth $100.42
Value Based on 0% Growth $58.87
Market Implied Growth Rate 1.35%
PEmg 11.21
PB Ratio 0.97

Balance Sheet – December 2014

Total Debt $47,577,000,000
Total Assets $308,854,000,000
Intangible Assets $13,978,000,000
Total Liabilities $263,801,000,000
Outstanding Shares 561,800,000

Earnings Per Share

2014 $7.59
2013 $6.96
2012 $6.16
2011 $6.80
2010 $6.01
2009 $0.74
2008 -$0.21
2007 $3.97
2006 $7.62
2005 $6.73
2004 $6.21

Earnings Per Share – ModernGraham 

2014 $6.93
2013 $6.17
2012 $5.15
2011 $4.25
2010 $3.20
2009 $2.45

Dividend History

Conclusion:

Capital One Financial qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability or growth over the last ten years, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $3.20 in 2010 to $6.93 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.35% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.

Be sure to check out previous ModernGraham valuations of Capital One Financial (COF) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Capital One Financial (COF)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Capital One Financial (COF) or in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Capital One Financial Quarterly Valuation – October 2014 $COF

500px-Capital_One_Financial_logo.svg

Defensive Investors, the most conservative level of ModernGraham style investing, may not be interested in Capital One Financial due to the unstable earnings and low earnings growth over the last ten years, but Enterprising Investors should be very interested. The company passes all of the investor types’ requirements, and they should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

In recent years, the company has grown its EPSmg (normalized earnings) from $3.20 in 2010 to an estimated $6.86 for 2014. This is an outstanding level of growth, which significantly outpaces the market’s implied estimate of only 1.46%. In fact, the actual growth demonstrated by the company is greater than twenty percent. As a result of the strong growth demonstrated historically, the ModernGraham valuation model returns an estimate of intrinsic value well above the price, supporting a clear conclusion that the company is significantly undervalued. Enterprising Investors are therefore encouraged to proceed with further research to determine whether Capital One Financial is suitable for their own individual portfolios.

Be sure to check out previous ModernGraham valuations of Capital One Financial for better perspective.

Read the full valuation on Seeking Alpha!

COF Chart

COF data by YCharts

Capital One Financial Quarterly Valuation – July 2014 $COF

500px-Capital_One_Financial_logo.svgIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to widdle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Capital One fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Capital One Financial Corporation is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries offer an array of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. As of December 31, 2012, the Company’s principal subsidiaries included Capital One Bank (USA), National Association (COBN), which offers credit and debit card products, other lending products and deposit products, and Capital One, National Association (CONA), which offers a spectrum of banking products and financial services to consumers, small businesses and commercial clients. On February 17, 2012, the Company acquired ING Direct business in the United States (ING Direct) from ING Groep N.V., ING Bank N.V., ING Direct N.V. and ING Direct Bancorp. In November 2013, Capital One Financial Corp acquired Beech Street Capital LLC.
COF Chart

COF data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $83.96
MG Value $223.01
MG Opinion Undervalued
Value Based on 3% Growth $100.88
Value Based on 0% Growth $59.14
Market Implied Growth Rate 1.78%
PEmg 12.07
PB Ratio 1.12

Balance Sheet – 3/31/2014

Total Debt $28,574,000,000
Total Assets $290,500,000,000
Intangible Assets $13,974,000,000
Total Liabilities $247,699,000,000
Outstanding Shares 572,920,000

Earnings Per Share

2014 (estimate) $6.92
2013 $7.35
2012 $6.54
2011 $7.03
2010 $6.68
2009 $0.98
2008 $0.14
2007 $6.55
2006 $7.62
2005 $6.73
2004 $6.21

Earnings Per Share – ModernGraham 

2014 (estimate) $6.96
2013 $6.56
2012 $5.53
2011 $4.78
2010 $3.90
2009 $3.14

Dividend History

COF Dividend Chart

COF Dividend data by YCharts

Conclusion:

Capital One is suitable for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned by the lack of sufficient earnings growth over the last ten years, but the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham’s valuation of Discover Financial Services (DFS) and ModernGraham’s Valuation of American Express (AXP).  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $3.90 in 2010 to an estimated $6.96 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 1.78% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Capital One (COF)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to check out the previous ModernGraham valuations of Capital One!

Disclaimer:  The author did not hold a position in Capital One (COF) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Company of the Week: Capital One Financial (COF)

image (12)The ModernGraham approach to investing has multiple layers to it.  Regular readers will be familiar with the first two steps; the first is to determine if the company is suitable for the Defensive Investor or the Enterprising Investor, and the second is to compare the price to the intrinsic value through quantitative analysis.  The next step in the analysis is to review the company’s management and other qualitative factors to determine how the company may compare to other companies that pass the first two steps.  In this Company of the Week series, we will delve into more detail about a specific company that performed well in the first two areas.  This week, the company chosen, Capital One Financial, is one of the most undervalued out of all 250+ companies in the ModernGraham database and was recently featured as one of April’s 5 Undervalued Companies for the Enterprising Investor.

Results of Recent Valuation

Feel free to review ModernGraham’s latest valuation of Capital One Financial in detail, or read this summary:

Capital One Financial is a great company for Enterprising Investors to look at in more detail, but it does not quite qualify for the Defensive Investor because it has not shown sufficient growth in its earnings over the ten year historical period.  That said, the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to competitors through a review of ModernGraham’s valuation of JP Morgan Chase (JPM) and ModernGraham’s valuation of Wells Fargo Inc. (WFC).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $3.14 in 2009 to $6.56 for 2013.  This solid level of demonstrated growth surpasses the market’s implied estimate of 1.46% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

Further Analysis

Price trend compared to the market

In the following chart, it is clear that over the last ten years Capital One has underperformed the market.  This is largely due to the financial crisis dropping the prices of financial companies significantly.  While Intelligent Investors will know that price trends are not determinative of value or opportunity, they can be helpful in comparing Mr. Market’s behavior toward the company with the valuation.  It is easy to see that Mr. Market may have overreacted in some respects by bringing down Capital One Despite the company’s performance during the crisis.  Now, despite the company outperforming the market over the last five years, it does appear to still have upside, as explained in the summary above.

COF Chart

COF data by YCharts

Earnings Per Share

The next chart is a bit interesting, as it shows the company’s earnings history over the last ten years.  Clearly, the company took a hit during the crisis.  However, the company has recovered well since then, and has certainly returned to the level of earnings seen before the crisis.  The Intelligent Investor’s concern, however, may be that the company has not shown strong enough growth over the full ten year period.  This is the case for those following the Defensive Investor requirements of the ModernGraham approach, and this company is definitely not suitable for that investor type, but the Enterprising Investor may be satisfied as the company has grown its earnings over the five year period and appears to have the potential to grow further at a rate above what the market is implying.

COF EPS Diluted (Quarterly) Chart

COF EPS Diluted (Quarterly) data by YCharts

Dividend Rate & Yield

Dividends are a very important part of any analysis into a company, as they not only indicate management’s willingness to return value to shareholders, but they also indicate an opportunity for the Intelligent Investor to gain a return on the investment outside of capital appreciation.  In the next chart, we see that Capital One has consistently paid a dividend, and recently raised it significantly.  However, the dividend growth history is not as strong as an Intelligent Investor would like to see, but the main requirement of dividend payments is met.  After all, even though the company has not grown the dividend in a consistent manner, it has proven willing to return value to the shareholders.

COF Dividend Chart

COF Dividend data by YCharts

Price to Book

This final chart demonstrates the potential value by showing the company’s price to book ratio over the last 20 years.  As you can see, the company is still trading at a comparatively low Price to Book ratio.  This alone is not a strong indicator of value, but used in conjunction with intrinsic value estimates and detailed analysis, it can help show again that the market may be undervaluing the company.  At the very least, the market is not treating it the way it did in the past.
COF Price to Book Value Chart

COF Price to Book Value data by YCharts

ModernGraham Conclusion

To me, Capital One appears to be a very intriguing opportunity for value investors.  The company qualifies for Enterprising Investors, and the quantitative analysis using one of Benjamin Graham’s formulas indicates the company is significantly undervalued.  However, there are some concerns with the earnings growth and dividend growth that may shy away some investors.  I think any decision about investing in Capital One may turn out to be a gut call based on the individual’s responses to the Management Tenet questions listed below.  The company passes the initial tests, and has some great qualities but I need to know a little bit more before committing.  I’d be very interested to hear readers views regarding any qualitative analysis regarding the company.

Management Tenets

Warren Buffett has promoted looking at some key management tenets, and I’d like to leave it up to readers to discuss how Intel fulfills (or fails to fulfill) these qualities.  Please discuss the following in the comments below:

  1. Is the business simple and understandable?
  2. Does the business have a consistent operating history?
  3. Does the company have favorable long-term prospects?
  4. Is management rational?
  5. Is management candid with shareholders?

Disclosure:  The author did not hold a position in Capital One Financial (COF) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

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