This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Capital One: Top Bank Stock Pick for 2012

NEW YORK ( TheStreet) -- Capital One (COF - Get Report) is a top pick among bank stocks for 2012, with continued strength in earnings and a historically low valuation to forward earnings estimates and book value.

The company expects to receive the Federal Reserve's approval of its agreement to purchase ING Direct (USA) from ING Groep (ING - Get Report) for roughly $9 billion, following a series of three public hearings held by the Fed and completed in October, where various consumer groups voiced their opposition to the deal.

The Office of the Comptroller of the Currency has reopened its public comment period for Capital One's pending deal to acquire HSBC's (HBC) U.S. credit card portfolio for a premium of $2.6 billion.

Capital One still expects the ING deal to be completed late this year or early in 2012, providing needed liquidity for the HSBC card deal, which is expected to close in the second quarter.

Shares of Capital One closed at $45.15 Monday, rising 7% year-to-date, which is a strong return in a year that has seen the KBW Bank Index (I:BKX) pull back 27%. And the shares trade at valuations similar to the "big four" U.S. bank holding companies, while Capital One has posted much stronger earnings results.

The better earnings for Capital One are no surprise, with credit cards providing 65% of third-quarter revenue and 70% of earnings from continued operations, after tax. Capital One's operating return on average assets was 1.72% in the third quarter according to SNL Financial, and has ranged between 1.42% and 2.08% over the past five quarters.

The shares trade for just 7.5 times the consensus 2012 earnings estimate of $6.14 a share, among analysts polled by FactSet, and for 1.4 times tangible book value, according to SNL.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

Let's see how these numbers stack up against the big four U.S. bank holding companies:

  • Shares of Bank of America (BAC - Get Report) closed at $5.45 Monday, down 59% year-to-date. The shares trade for 5.8 times the consensus 2012 EPS estimate of 99 cents and for 0.4 times tangible book value. The ROA over the past five quarters has ranged from a negative 1.51% in the second quarter, when the company posted a net loss of $9.1 billion, springing from a $14.5 billion loss in its Consumer Real Estate division as it tried to put mortgage putback demands behind it, to a positive ROA of 1.08% in the third quarter.
  • JPMorgan Chase (JPM - Get Report) closed at $32.04 Monday, down 23% year to date. The shares trade for 6.8 times the consensus 2012 EPS estimate of $4.88, and just under tangible book value. The ROA over the past five quarters has ranged between 0.76% and 1.06%.
  • Shares of Wells Fargo (WFC - Get Report), closed at $26.29 Monday, down 14% year-to-date. The shares trade for 8.4 times the consensus 2012 EPS estimate of $3.20 and 1.5 times tangible book value. The ROA has ranged between 1.12% and 1.29% over the past five quarters.
  • Citigroup (C - Get Report) closed at $27.22 Monday, down 42% year-to-date. The shares trade for 6.6 times the consensus 2012 EPS estimate of $4.34, and for just over half their tangible book value. The ROA has ranged between 0.28% and 0.76% over the past five quarters.

You get what you pay for, and Capital One is putting up consistent earnings numbers. Looking back to the five full years before the credit crisis nearly wiped-out the company's earnings in 2008, Capital One's ROA ranged from 1.74% to 3.05%, and the shares tended to trade in a range of 14 to 27 times trailing earnings.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
HBC $0.00 0.00%
BAC $15.39 -0.84%
C $51.53 -0.21%
COF $78.82 -0.48%
ING $14.60 -1.10%


DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs