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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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 – 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
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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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

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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.  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.

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