Why Capital One Now Has Become the Best Credit Card Stock

Banking, finance, and taxes

Published: June 9, 2014 12:55 pm

Shares of Capital One Financial Corp. (NYSE: COF) rose on Monday after an analyst research report highlighted that the company may be the best positioned credit card issuer for its investors ahead. Nomura raised its rating to Buy from Neutral and raised the price target all the way up to $94 from $75 in the call.

Bill Carcache, the banking analyst for Nomura, wrote that since the start of 2013, Capital One shares have underperformed American Express Co. (NYSE: AXP) and Discover Financial Services (NYSE: DFS).

That performance lag has been great. Nomura’s report put the underperformance by a sharp 26% when compared to American Express and also by 21% when compared to the performance of Discover.

Looking ahead, Carcache expects that Capital One’s performance will improve. This is from a resumption of loan growth and as profit-and-loss expense headwinds turn into tailwinds that help rather than drag on the stock.

Capital One shares were up more than 8% year-to-date in 2014, based on mid-Monday trading. The Dow Jones Industrial Average was up about 3% for the year.

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Nomura’s price target and expectation is 1.8 times the firm’s estimate of 2015 tangible book value per share. Another positive metric was what Carcache said:

Their Buy thesis does not hinge on robust loan growth and they believe COF still stands to benefit even without any help from the macro. It has been a long road, but the inflection point in card loan growth may finally be near. Stronger loan growth would add meaningful upside to their estimates.

Capital One shares have still not quite hit all-time highs, but the stock was up 1.8% at $82.31 for a 52-week high on Monday. Discover shares were up 0.7% at $62.25, and hit a new all-time high. American Express shares were up 1% mid-Monday hitting a new all-time high of $95.86.

Nomura wants Capital One shares in your wallet.

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