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:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||1.52%|
|MG Value based on 3% Growth||$110.16|
|MG Value based on 0% Growth||$64.58|
|Market Implied Growth Rate||0.95%|
|% 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
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2018|
|Long-Term Debt & Capital Lease Obligation||$51,821,000,000|
|Shares Outstanding (Diluted Average)||480,900,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$11.52|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$7.60|
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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.