Target Price Raised on Capital One Financial

Joanna Kong
Yahoo Finance Premium
A Capital One Walmart credit card sign is seen at a store in Mountain View, California, United States on Tuesday, November 19, 2019. (Photo by Yichuan Cao/NurPhoto via Getty Images)
  • Capital One Financial (COF) shares jumped over 4% on January 22 following strong 4Q earnings of $2.49 per share, well above the $2.28 consensus. Average loans grew 8% in 4Q19, up from 4% in 3Q19. The net interest margin also expanded on a better lending mix.

  • Credit quality, often a large swing factor in earnings, remained strong, with net charge-offs of 2.60% of average loans in 4Q, which is lower than we'd expect at this point in the credit cycle.

  • In what we view as a substantial new growth opportunity, Walmart and Capital One began a long-term credit card program in mid-2019 in which COF will be the exclusive issuer of Walmart's private-label and co-branded credit cards in the U.S. COF also acquired Walmart's $9 billion credit card portfolio from Synchrony in 4Q19.

  • We continue to view operating trends as healthy, including good growth in domestic credit card lending and purchase volumes, increased commercial lending, and continued solid credit quality, and maintained a BUY on the COF shares. Our target price was raised to $119 (from $106), implying a multiple of only 10-times our 2020 estimate.

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