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TheStreet Open House

Capital One: Financial Winner (Update 1)

Stocks in this article: BAC C USB COF MS WFC FNMA FMCC I:BKX

The company is scheduled to report its fourth-quarter results on Jan 17, with the consensus among analysts being a profit of $1.63 a share, compared to EPS of $2.01 in the third quarter and 88 cents in the fourth quarter of 2011.

The third quarter was the company's first "clean" quarter in 2012, with a very strong return on average tangible common equity of 21.48%. The first and second quarters of 2012 were affected by numerous one-time items springing form Capital One's two transformative mergers. The company in February acquired ING Direct (USA), followed by a $1.25 billion common equity raise in March. Then in May, Capital One purchased HSBC's (HBC) U.S. credit card portfolio for $2.5 billion.

The ING deal included roughly $80 billion in deposits gathered over the Internet, along with $41 billion in loans, providing plenty of liquidity for the $28.2 billion in credit card loans acquired from HSBC.

FBR analyst Paul Miller on Dec. 19 included Capital One among his list of "stocks to own for 2013," with a price target of $72, saying the company is "one of our favorite names due to its compelling valuation ($72 target = 10x our FY13 EPS estimate and 1.1x book value), expected resumption of the dividend, and increased earnings power."

Morgan Stanley


Morgan Stanley was the Monday's loser among the largest U.S. Banks, with shares sliding 2% to close at 19.80. The shares have now returned 4% year-to-date. The shares returned 28% during 2013, following a 44% decline during 2011.

The shares trade for 0.7 times their reported Sept. 30 tangible book value of $26.65, and for 10 times the consensus 2013 EPS estimate of $1.99. The consensus 2014 EPS estimate is $2.33.

Morgan Stanley pays a quarterly dividend of a nickel a share, and investors are sure to be wondering whether or not the company will request Federal Reserve permission to increase its return of capital to investors, as part of the regulator's next round of annual stress tests, which will be completed in March.

Bank of America Merrill Lynch analyst Michael Carrier has a neutral rating on Morgan Stanley, with a $20 price target, saying in November that there could be "upside potential" for Morgan Stanley to pay out a higher percentage of earnings, following the stress tests. Then again, the analyst also said that the possible regulatory approval for the company to complete its purchase of Citigroup's entire remaining stake in the Morgan Stanley Smith Barney joint venture could "mostly replace" common share buybacks.

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