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[Update 06/09/2021] Capital One Valuation Update
(NYSE: COF) gained around 65% YTD, rising from around $ 99 at the start of 2021 to around $ 164 currently, significantly ahead of the S & P500, which rose 13% over the same period.$ 157 per share - slightly below the current market price. The recent rise in inventories could be attributed to the approval of the stimulus package, the acceleration of the vaccination campaign against the Covid-19 and the decision of the Fed to keep rates close to zero, which strengthened the prospects for a strong economic recovery. In addition, the bank has posted better-than-expected results over the past three quarters.
Capital One reported total sales of $ 7.1 billion, down 2% from the previous year. This could be attributed to a 3% year-on-year decline in net interest income due to lower outstanding loans and a lower interest rate environment, partially offset by a 5% increase in net interest income. non-interest income. Additionally, COF's adjusted net sales increased from $ -1.4 billion to $ 3.2 billion year-over-year, mostly in rDue to a significant decline in bad debt provisions - it freed up $ 1.6 billion in bad debt reserves during the quarter.
Capital One's revenue increased The amount of $ 28.5 billion for the full year 2020 was slightly lower than in 2019. The net interest income of all banks with large loan portfolios suffered in 2020 due to a drop in new loan issuance and a lower interest rate environment, and Capital One was no exception. Its NII declined 2% year-on-year, almost offset by a 7% year-on-year growth in non-interest income. Non-interest income benefited from an unrealized gain of $ 535 million on a stake in Snowflake Inc. However, excluding the impact of the unrealized capital gain, non-interest incomehave decreased year over year. That said, we expect NII to continue to suffer in FY2021, due to falling interest rates, which should not see an immediate return to pre-Covid levels. 19. While we expect outstanding loan balances to improve over the course of the year due to picking up levels of consumer spending, there is unlikely to be any significant growth. . Overall, they are expected to remain around $ 28.6 billion in fiscal year 2021.
In addition, the bank has a significant loan portfolio of over $ 250 billion (based on 2020 data). Due to the Covid-19 crisis and the economic downturn, the risk of default increased in 2020, leading to an accumulation of loan loss provisions from $ 6.2 billion to $ 10.3 billion. This had a negative impact sur bottom line, which declined 50% year-on-year to $ 2.7 billion. However, the bank has reduced its provisions in recent quarters, signaling some recovery in customer credit default risk. In addition, we expect it to experience a favorable decline in the following months, with the economy improving. This will likely result in EPS of $ 14.89, which together with a P / E multiple just below 11x will lead to a valuation of $ 157.
[ Update 08/02/2021] Does Capital One share have more potential?
Despite an increase of more than 150% since the lows of March 23 of last year, we believe (NYSE: COF) still has some upside potential. Trefis estimates at around $ 126 per share, or around 10% above the current price.el from the market. Capital One, the credit card giant, reported better-than-expected revenue and earnings in recently released fourth quarter results. Its revenues of $ 7.3 billion were slightly lower than the previous year. This could be attributed to a 3% year-over-year decline in net interest income due to headwinds in interest rates, partially offset by an 8% increase in non-interest income. In addition, its profitability improved during the quarter, both year-on-year and on a sequential basis, due to lower provisions for credit losses.
Capital One pulls close to 80% of its income is net interest income. Therefore, the credit card giant is very sensitive to changes in interest rates. In addition, levels of consumer spending have a direct impact on outstanding loans and the volume of purchases ofcards, affecting its turnover. Interest rates suffered in 2020 as a result of the Federal Reserve's zero rate policy in response to the Covid-19 crisis. Likewise, levels of consumer spending suffered in the first two quarters due to the pandemic and the economic downturn, before improving in the last two quarters. In total, the above factors limited Capital One's 2020 revenue to $ 28.5 billion, slightly lower than a year ago. That said, consumer spending levels are expected to pick up further in the coming months. This, along with the massive availability of the Covid-19 vaccine and improving economic conditions, will likely benefit the company's revenue, reaching $ 29 billion in the fiscal year. 2021.
Capital One's profitability took a hit in 2020, due to a significant build-uption of provisions for credit losses - operating income fell from 24% in 2019 to only 11.2% in 2020. Due to the Covid-19 crisis, the loan repayment capacity of its customers has suffered over the past year. Therefore, the company increased its allowance for credit losses to neutralize this risk - from $ 6.2 billion to $ 10.3 billion for full year 2020. at EPS of 5.18 $. However, as the economy normalizes, provisions for bad debt are expected to decrease somewhat. The same was evident in the fourth quarter 2020 results, where the company released a loan reserve of $ 593 million. Additionally, Capital One is expected to relaunch its share buyback program in 2021. This will likely allow EPS figure to hit $ 11.92 for the current year. Overall, EPS of $ 11.92 coupled with a P / E multiple just below 11x conduwill go at a valuation of around $ 126.
[Updated 11/16/2020] Capital One stock is trading at close At fair value
(NYSE: COF) has gained 107% from the March low and at its current price of $ 89 per share, it is 5% above its fair value of $ 84 - Trefis 'estimate for . The credit card giant recently released its third quarter results, beating consensus estimates in terms of both revenue and profit. The company reported sales of $ 7.4 billion, up 6% from the previous year. This could be attributed to a 49% year-over-year jump in non-interest income, partially offset by a 3% drop in net interest income. In addition, the allowance for credit losses increased to $ 10 billion for the nine months, from $ 4.4 billion during the period of the previous year, mainly.not due to expected losses on outstanding loans.
We expect the company to bring in $ 27.4. billion dollars in revenue for 2020 - about 4% lower than the 2019 figure. Our forecast stems from our belief that the economy is likely to see some improvement in the last quarter, improving performance. business outlook for the company over the next few months. However, net income for the year is expected to suffer due to a large build-up of provisions for credit losses, reducing EPS to - $ 1.30 for fiscal 2020. Thereafter, they are expected to grow. Improve to reach $ 28.4 billion in fiscal 2021, primarily driven by growth in outstanding loans. The net profit margin is expected to improve due to lower provisions for credit losses, leading to EPS of $ 7.64 for fiscal 2021. This, combined with a P / E multiple of 'around 11x, will lead to a valuation of $ 84.
[Update 10/16/2020] Up 50%, Capital One Stock is still 20% up
(NYSE: COF) lost more than 58%, from $ 103 in late 2019 to around $ 43 in late March, then climbed around 53% to around $ 66 now. Despite the recent rally, the stock remains 36% below the level at the start of the year.
This can be attributed to 2 factors: The Covid-19 epidemic and the economic slowdown have meant that market expectations for 2020 short-term consumer demand fell. Since the company derives most of its revenue from the credit card business, it could incur losses due to lower consumer demand and an expected increase in default rates. payment. The multi-billion dollar stimulus from the Fed provided a floor, and the equity rally owes a lot to it.
But it 's notThat's the end of the story for Capital One shares
Trefis estimates at around $ 78 per share, or about 20% above the current market price, based on an upcoming trigger explained below and a risk factor.
The trigger is an improved trajectory over the second half of the year. We expect the company to report 2020 revenue of $ 27.5 billion, about 4% lower than the 2019 figure. Our forecast stems from our belief that the economy should grow. 'open in the third quarter. The easing of foreclosure restrictions in most countries of the world is likely to help consumers demand, leading to an increase in card lending and growth in transaction volume - credit card business accounts for around 64% of total business income. This, in turn, would benefit the trajectory of income over the years.next months. On the other hand, net income for the year is expected to be affected due to the accumulation of provisions for credit losses, reducing revenue per share to - $ 2.17 for the year. 'Fiscal Year 2020.
Subsequently, Capital One ' s revenues are expected to improve to $ 28.2 billion in fiscal year 2021, mainly due to the growth in outstandings of ready. Additionally, the net profit margin is expected to improve year over year due to lower provisions for credit losses, leading to EPS of $ 7.20 for fiscal 2021.
Finally, how much should the market pay per dollar of Capital One revenue? Well, to make almost $ 7.20 a year from a bank, you need to deposit around $ 785 into a savings account today, which is around 110 times the earnings you want. At the current Capital One share price of around $ 66, we are talking about a P / E multiple just abovessus of 9x. And we think a figure closer to 11x will be appropriate.
That said, consumer credit is a risky business right now. Growth looks less promising and the short-term outlook is less than optimistic. What is behind this?
Capital One has a huge portfolio of outstanding loans - roughly $ 247 billion in fiscal 2019, of which nearly $ 114 billion is in credit card loans alone. The economic downturn is likely to hurt the financial health of many clients, exposing the company to potential defaults.
As a result, Capital One has increased its loan loss provisions to around 9 , $ 7 billion by the second quarter of 2020 - more than three times the period of the previous year, resulting in a huge increase in the total expenditure figure for the year. If the economic situation continor deteriorate, this figure could increase further in the following months.
The same trend is visible on all peers - AXP fbs-ticker>. Its revenues are expected to suffer in fiscal 2020 due to lower consumer spending. In addition, its net margin is expected to suffer from a surge in provisions for anticipatory credit losses. would explain why American Express stock is currently priced over $ 96 but is expected to achieve EPS of around $ 6.66 for fiscal 2021.
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