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.
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
Other ModernGraham posts about related companies
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.
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