Financial Services Stocks

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

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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

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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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