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.

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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.


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
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



Useful Links:

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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

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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.






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