Capital One (COF) represents one of the top performing financial stocks so far this year, soaring 26 percent, and with good reason.
The company has expanded its reach markedly over the past few years. Initially, it just provided credit cards in the United States. But now it has expanded into auto lending and credit-card issuance in the United Kingdom and Canada.
Capital One also owns two banks — one in New York and another in Louisiana — which can serve as a base for further growth in that sector.
Capital One’s profit jumped 60 percent in the first quarter, to $1.02 billion from $636.3 million a year earlier. Consumers have improved their balance sheets, which led to a drop in defaults by Capital One cardholders and helped boost profit. Net charge-offs dropped 18 percent in the first quarter to $1.15 billion from $1.39 billion a year earlier.
Delinquencies, payments late by 30 days or more, slid to 3.88 percent of outstanding balances from 5.43 percent last year. The decline in delinquencies points to a further decrease in charge-offs, because delinquencies turn into defaults after 180 days.
The improvement of borrowers’ positions allowed Capital One to cut its loan-loss provisions by 64 percent to $534 million.
“We are gaining momentum across our businesses, and the period of shrinking loans through the Great Recession came to an end in the first quarter,” Capital One CEO Richard Fairbank said in a statement accompanying the company’s earnings report.
Customers’ purchases climbed 14 percent in the first quarter, and Capital One opened more new accounts in March than in any month since November 2007, just a month before the recession started.
Analysts at Ned Davis Research say Capital One shares are undervalued based on its price-to-book ratio of 0.89, which is less than the financial sector’s bottom quintile value of 0.91, and based on its trailing-12-month price-to-earnings ratio of 7.25.
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