2024-05-07 08:58:54 ET
Summary
- Capital One's shares have gained 63% in the past year, but it is no longer a "strong buy" given a slightly lowered earnings outlook and concern about the Discover purchase.
- The bank's deposit franchise remains strong, with average deposits slightly increasing in Q1, and 82% of deposits insured.
- Credit card loans are a major driver of COF's profits, but credit quality has been deteriorating, although signs of a peak are emerging.
- The Discover deal will face significant regulatory scrutiny, but I am concerned it could prove dilutive.
Shares of Capital One ( COF ) have been a strong performer over the past year, gaining 63% as the company has handled the regional banking crisis well. Its deposit franchise is strong, and consumer credit trends have been better than many feared. I reiterated shares of Capital One as a “strong buy” in December , and since then, shares have returned nearly 20% vs the market’s 11% rally. Given its ongoing outperformance and with new financials available, now is an opportune time to revisit the stock. While I remain positive on COF, I no longer see it as a “strong buy.”...
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Capital One: Less Attractive As Discover Deal Offsets Hopeful Credit Trends (Rating Downgrade)