Company Reports

Narrow-moat-rated Capital One reported decent first-quarter earnings that were largely in line with our expectations. Net revenue increased 6% from last year to $9.4 billion, while diluted earnings per share increased 35% to $3.13. These results translate to a return on tangible equity of 12.7%. As we incorporate these results, we do not expect to change our $158 per share fair value estimate.

Capital One maintains a more limited branch network than its traditional banking peers, using its online and mobile channels to acquire customers and service its accounts. The focus on online bank accounts has allowed the company to establish a national presence broader than what its narrow branch network would traditionally allow. This dynamic allows Capital One to enjoy the benefits of being a large bank without the expense of operating the branch system of a large bank.

Narrow-moat Capital One Financial has agreed to acquire Discover Financial Services in an all-stock deal worth $35 billion. The acquisition is expected to close by late 2024 to early 2025. In general, we are neutral on the deal as we do see strategic value to it, particularly as it relates to Discover’s network. Additionally, we believe Capital One is paying a fair price, with the implied transaction price of $139.86 per share at the time of the announcement being nearly equal to our $141 fair value estimate for Discover. That said, there will be meaningful integration risk and some uncertainty around regulatory approval, as the combined company would be the largest credit card issuer in the U.S. by loan volume. Therefore, we do not expect our fair value estimate to change as a result of the transaction.

Capital One maintains a more limited branch network than its traditional banking peers, using its online and mobile channels to acquire customers and service its accounts. The focus on online bank accounts has allowed the company to establish a national presence broader than what its narrow branch network would traditionally allow. This dynamic allows Capital One to enjoy the benefits of being a large bank without the expense of operating the branch system of a large bank.

Narrow-moat-rated Capital One reported earnings that were in line with our expectations as rising credit costs and one-time charges led to a decline in earnings. Net revenue increased 5% from last year and 1% from last quarter to $9.5 billion. Meanwhile, earnings per share fell 45% from last year to $1.67, inclusive of a special assessment from the FDIC that reduced earnings per share by $0.57. These results translate to a return on tangible equity of 7.2%, or 9.7% when adjusted for the FDIC assessment. As we incorporate these results, we do not plan to materially alter our $146 fair value estimate for Capital One, and we see the shares as slightly undervalued.

Narrow-moat-rated Capital One reported a good third quarter as credit costs came in lower than expected and pressure on the bank's net interest margin moderated. Net revenue increased 6% from last year and 4% from last quarter to $9.4 billion. Meanwhile, net income increased 6% year over year to $1.8 billion, which translates to a return on tangible equity of 19.59%. As we incorporate these results, we do not plan to materially alter our $146 per share fair value estimate. We see the shares as undervalued.

Capital One maintains a more limited branch network than its traditional banking peers, using its online and mobile channels to acquire customers and service its accounts. The focus on online bank accounts has allowed the company to establish a national presence broader than what its narrow branch network would traditionally allow. This dynamic allows Capital One to enjoy the benefits of being a large bank without the expense of operating the branch system of a large bank.

Narrow-moat-rated Capital One reported results that were roughly in line with our expectations as higher credit costs and narrower net interest margins pressured bottom line results, partially offset by good expense management. Net revenue increased 9% from last year and 1% from last quarter to $9 billion. Diluted earnings per share decreased 29% from last year to $3.52, which translates to a return on tangible common equity of 15.3%. The decrease in earnings was primarily due to higher credit costs as Capital One built up another $328 million in reserves, while 2022 was a year of unusually low net charge-offs industry wide. As we incorporate these results, we do not plan to materially alter our $140 fair value estimate for Capital One and we see the shares as undervalued at current prices.

The Federal Reserve has released the results of its annual stress tests. Our key takeaway is that the banking system remains well capitalized, and stress capital buffers, or SCBs, are likely to be declining for nearly half of the banks we cover who participated in the test this year. This will bring some capital relief to some key names under our coverage, including JPMorgan, Bank of America, M&T Bank, Goldman Sachs, and Morgan Stanley. Whether or not management teams will actually lower their internal common equity Tier 1 targets is another story. As they await other potential regulatory changes, we expect most would choose to err on the side of holding more capital rather than less. Even so, we would view these banks as the big winners from this year’s stress tests as results are set to give these banks more buffer space for now.

Narrow-moat-rated Capital One reported weaker-than-expected first-quarter results as higher-than-anticipated credit provisioning and net interest margin contraction compressed the bank's bottom line. Net revenue increased 8.9% year over year, but was down 1.5% sequentially, to $8.9 billion. Earnings per share decreased 59% year over year, and 24% quarter over quarter, to $2.31, which translates to a return on tangible equity of 10.15%. The decrease in earnings was primarily due to higher credit provisioning as the bank built up $1.1 billion in reserves.

Many of the credit card-focused firms under our coverage have developed deep discounts to our fair value estimates as concerns about rising credit costs have been aggravated by recent turmoil in the banking sector following the failure of Silicon Valley Bank. While the market has gone too far in discounting many of these names, the concern is not entirely unwarranted. Rising interest rates, debt levels, and shelter costs have increased financial pressure on consumers as a larger portion of their income becomes tied up in servicing financial obligations, and we expect this pressure to continue to build in the near term.

Capital One maintains a more limited branch network than its traditional banking peers, using its online and mobile channels to acquire customers and service its accounts. The focus on online bank accounts has allowed the company to establish a national presence broader than what its narrow branch network would traditionally allow. This dynamic allows Capital One to enjoy the benefits of being a large bank without the expense of operating the branch system of a large bank.

Narrow-moat-rated Capital One reported fourth-quarter results that were mostly in line with our expectations, though credit costs did come in higher than we had anticipated and were a drag on bottom-line results. The bank’s net revenue increased 3% from last quarter and 11% year over year to $9.04 billion. On the other hand, earnings per share fell 44% from last year to $3.03, which translates to a return on tangible equity of 14.22%. The primary culprit behind the drop in earnings was credit provisioning, with the bank building $1 billion in reserves versus a $145 million release of reserves last year. While much of the increase was driven by strong loan growth, higher net charge-offs also played a role as the bank’s credit losses rise from historic lows.

Capital One maintains a more limited branch network than its traditional banking peers, using its online and mobile channels to acquire customers and service its accounts. The focus on online bank accounts has allowed the company to establish a national presence broader than what its narrow branch network would traditionally allow. This dynamic allows Capital One to enjoy the benefits of being a large bank without the expense of operating the branch system of a large bank.

Capital One maintains a more limited branch network than its traditional banking peers, using its online and mobile channels to acquire customers and service its accounts. The focus on online bank accounts has allowed the company to establish a national presence broader than what its narrow branch network would traditionally allow. This dynamic allows Capital One to enjoy the benefits of being a large bank without the expense of operating the branch system of a large bank.

Narrow-moat Capital One reported decent third-quarter results, as strong loan growth was offset by higher provisioning and operating expenses. Net revenue increased 12% from last year and 7% from last quarter to $8.8 billion. Diluted earnings per share fell 38% to $4.20, which translates to a return on tangible equity of 18.59%. The EPS decline was due to substantially higher provisioning for future credit losses as the company built $734 million in reserves during the quarter versus a $770 million release last year. We see the increase in reserves as primarily a return to normal provisioning behavior, not a sign of sudden credit deterioration, as write-offs remain well below normal levels. As we incorporate these results, we do not expect to materially alter our $155 fair value estimate; we see the shares as undervalued at current prices.

Narrow-moat-rated Capital One reported mixed second-quarter results with strong loan growth being offset by heavy spending and a continued normalization of credit losses and provisioning. Preprovision net revenue grew 12% year over year to $8.2 billion, with net interest income being the primary driver of growth. EPS was $4.96, a 35% decline from $7.62 last year, which translates to a still strong return on tangible equity of 22.6%. The drop in EPS was primarily due to higher credit loss provisioning, with Capital One building $200 million in reserves versus a $1.16 billion release last year. We see this increase in reserves as primarily a return to normal provisioning behavior, as Capital One’s loan balance increased during the quarter, not a consequence of weak underwriting. As we incorporate these results, we are maintaining our $155 fair value estimate for Capital One, and we see the shares as modestly undervalued at current prices.

Capital One maintains a more limited branch network than its traditional banking peers, using its online and mobile channels to acquire customers and service its accounts. The focus on online bank accounts has allowed the company to establish a national presence broader than what its narrow branch network would traditionally allow. This dynamic allows Capital One to enjoy the benefits of being a large bank without the expense of operating the branch system of a large bank.

We went into this year’s Federal Reserve bank stress tests expecting a bit more pressure on stress capital buffers as multiple banks had warned in the preceding quarter that their SCB was likely to increase. This is indeed what played out, as we estimate that roughly seven of the 20 U.S. banks we cover that participated this year are likely to see a higher SCB once the assigned SCBs become official. It appears that JPMorgan, Bank of America, and Citigroup are all likely to see increases to their SCBs of close to 1% each. The biggest increase seems likely to come from M&T Bank, which we expect to increase close to 2.2%, going from 2.5% to roughly 4.7%. Meanwhile, we expect the SCB for 11 of the 20 U.S. banks we cover to remain stable, including for Wells Fargo, which had previously warned that their SCB could go up, so this is a slight positive surprise for the bank in our view. Finally, we think Goldman Sachs could see a slight decrease to its current SCB of 6.2%, potentially declining to 6%, while Discover could see a more material decline, going from 3.6% to 2.5%.

Narrow-moat-rated Capital One reported decent first-quarter results as the bank continues to see good loan growth and credit costs remain below normal levels. Preprovision net revenue increased 14.9% year over year and 0.7% sequentially to $8.2 billion. EPS was $5.62, which translates to a return on equity of 17.0%. We are maintaining our $161 per share fair value estimate.