Capital One: Watchdog Bite Winner

NEW YORK (TheStreet) -- Capital One Financial (COF) was the winner among the largest U.S. financial names on Thursday, with shares rising 3% to close at $56.37.

The Dow Jones Industrial Average and the S&P 500 Index both saw slight gains and the NASDAQ Composite index saw a 1% increase on the strength of a tech rally, following IBM's earnings announcement made after Wednesday's market close.

The Labor Department on Thursday said that initial jobless claims for the week ended July 14 rose 34,000 to 386,000 from an upwardly revised 352,000 the previous week. Economists polled by Thomson Reuters had expected that claims would rise to 365,000.

The KBW Bank Index (I:BKX) decline 1% to close at 45.74, with 15 of the 24 index components showing declines for the session.

Capital One's shares bounced back after declining 2% on Wednesday, following the company's announcement of $210 million in customer refunds and regulator fines related to what the Consumer Financial Protection Bureau called "deceptive marketing tactics used by Capital One's vendors to pressure or mislead consumers into paying for 'add-on products' such as payment protection and credit monitoring when they activated their credit cards."

Following Wednesday's market close, Capital One announced second-quarter earnings of $ 92 million, or 16 cents a share, missing the consensus estimate of a $1.30 profit, among analysts polled by Thomson Reuters.

In addition to the credit card settlement, one-time items affecting Capital One's second quarter bottom line included "an expense of $174 million to establish a finance charge and fee reserve for estimated uncollectible billed finance charges and fees and loan premium amortization expense of $63 million," springing from the acquisition of HSBC's $27.6 billion U.S. credit card portfolio.

Capital One also set aside "a $1.2 billion allowance build for the non-impaired loans brought on to the balance sheet" from the HSBC deal during the second quarter.

Bank of America Merrill Lynch analyst Kenneth Bruce rates Capital One a "Buy," with a price objective of $63, and said on Thursday that the second quarter brought "more noise than expected," but was "OK otherwise."

The analyst said that "getting to a clean number for the quarter requires some judgment," and that "adding back the premium amortization ($63M), PCCR amortization ($85M) and deal expenses ($106M) to Adjusted EPS, which were factored into our estimates, gets us back to $1.55," which is "close to our Adjusted EPS estimate of $1.50."

Capital One's shares have now returned 34% year-to-date, following a flat return during 2011.

COF data by YCharts

The shares trade for 1.4 times tangible book value, according to Thomson Reuters Bank Insight, and for eight times the consensus 2013 earnings estimate of $6.83, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $6.63.

Interested in more on Capital One? See TheStreet Ratings' report card for this stock.

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