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Capital One: Financial Winner

Stocks in this article: COF I:BKX

NEW YORK ( TheStreet) - Capital One Financial (COF) was the winner among the largest U.S. financial names on Wednesday, with shares rising 3% to close at $57.92.

The broad indexes ended mixed, as most investors sat tight heading into Thursday's statement from the Federal Reserve Open Market Committee, which many investors hope will include announcements of further action to stimulate the economy. Investors were no doubt also relieved after a German court approved the European economic powerhouse's participation in efforts to bail out weaker eurozone member nations.

Investors ignored a warning from Moody's Investor Service that the ratings agency might lower its long-term Aaa credit rating for the U.S. government to Aa1, unless Congressional "negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term."

The KBW Bank Index (I:BKX) rose 1% to close at 49.63, with all but three of the 24 index components showing gains for the session.

Capital One's shares have now returned 37% year-to-date, following a flat return during 2011.

The shares trade for 1.6 times tangible book value, according to Thomson Reuters Bank Insight, and for eight times the consensus 2013 earnings estimate of $6.91, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $6.15.

While the company's second-quarter results included several one-time expenses related to its purchase of HSBC's (HBC) U.S. credit card portfolio and the first-quarter acquisition of ING Direct (USA), JPMorgan analyst Richard Shane last Friday said that investors can expect a major return of capital from the company.

Following a meeting with Capital One CEO Richard Fairbank and CFO Gary Perlin, Shane reiterated his "Overweight" rating for the card lender, with a $70 price target, saying that "systematically returning capital remains the biggest potential catalyst for the stock," and that "we are modeling $2.4B of repurchases in 2013."

The analyst said that his firm's assumption of $2.4 billion in buybacks next year is "aggressive," but also said "we are comfortable with a more conservative scenario that entails the company building more capital than we expect before eventually repurchasing shares," and that Capital One's discounted valuation when compared to card rivals American Express (AXP) and Discover Financial Services (DFS) "limits downside risk if capital returns are delayed beyond our expectations."

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