NEW YORK (TheStreet) -- Capital One (COF) - Get Report , the ninth-largest bank in the U.S. by market capitalization, will report fourth-quarter earnings results Thursday after the market closes. And with weak results coming in from rival credit card issuer Discover Financial (DFS) - Get Report , Capital One investors are nervous, especially because the stock is down 6.5% on the year.
But there's no reason to panic, according to analysts.
Capital One, headquartered in McLean, Va., has a consensus buy rating and an average 12-month price target of $93, suggesting the stock can gain 20% gains from its current level around $77 per share. And if it can reach the highest analyst target of $102, that would be a gain of more than 30%. Analysts expect Capital to grow its earnings at an annual rate of 7.3% in the next five years.
Capital One should benefit from an improved economy and a stronger job market. The more money consumers have, the more likely they are to buy things and use credit, which bodes well for Capital One's ability to generate higher fees and deliver more profits for investors.
With research firm eMarketer predicting global retail sales to reach $28.3 trillion in the next three years, Capital One -- like other card issuers -- should benefit from that growth. Consumer spending may also get a lift from lower gas prices.
What's more, Capital One's stock is cheap. Take a look at the chart:
Shares of Capital One trade at 10.5 times what the company earned per share over the past year. That's the lowest price-to-earnings ratio among the major credit card-related businesses, including Visa (V) - Get Report (P/E of 30), MasterCard (MA) - Get Report (P/E of 29) and American Express (AXP) - Get Report (P/E of 16). And Capital One's P/E is half the average P/E of companies in the S&P 500. So now's the time to buy Capital One, especially because America Express Wednesday reported results that beat analysts' forecasts for its top and bottom lines.
Analysts expect Capital One to report a 20% year-over-year jump in earnings per share, to $1.74, topping the year-ago EPS of $1.45. Full-year EPS is expected to be $7.62 per share, up 9% year over year from $6.96.
Fourth-quarter revenue is projected to be $5.7 billion, up roughly 3% year over year from $5.54 billion. For the year, revenue is expected to come in at $22.23 billion, down roughly 1%.
In its previous four quarters, Capital One has averaged an 11% year-over-year jump in quarterly profits, including a 26% jump in the third quarter. And with consumers having more cash in their wallets -- helped by cheaper gas -- its earnings should continue to trend higher. This makes Capital One, which pays a dividend yield of 1.55%, a solid buy ahead of its earnings report.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.