Capital One Price Target Raised 44% by Jefferies

NEW YORK ( TheStreet) -- Jefferies analyst Daniel Furtado on Monday upgraded Capital One Financial ( COF) to a "Buy" rating, while raising his price target for the shares by 44% to $72.00.

Capital One's shares closed at $54.50 Friday, returning 29% year-to-date, following a flat return during 2011. The shares rose 9% last week.

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Furtado said that with its acquisition of ING Direct complete, with regulatory approval of the pending purchase of HSBC's $30 billion U.S. card portfolio for a $2.6 billion premium having been received, and with last week's $1.25 billion common equity raise, "much of the downside risk to COF shares has been removed."

The analyst called Capital One an "inexpensive stock in light of the U.S. recovery." The shares trade for eight times the consensus 2013 earnings estimate of $6.85, among analysts polled by Thomson Reuters, which according to Furtado is compares to a 12-time forward earnings multiple for American Express ( AXP), a nine-time multiple for Discover Financial Services ( DFS), and a 10-time multiple for Capital One's larger comparable peer group.

"Prior to the approval of the ING/HSBC acquisitions and considering the equity issuance overhang we had previously preferred DFS over COF," Furtado said, adding that he now sees "greater upside in shares of COF," adding that "against the backdrop of an improving US economy, we do not believe investors will penalize the company for credit normalization to the same extent as under a stagnant to declining economic backdrop."

Furtado still rates Discover a "Buy," with a $34 price target. Discover's shares closed at $32.05 Friday, returning 34% year-to-date, following a 31% return during 2011.

Getting back to Capital One, Furtado estimates the company will earn $5.71 a share during 2012, followed by 2013 EPS of $7.16, with earnings results "likely to be choppy over the next few quarters as integration and acquisition expenses are recognized, and the accounting adjustments for the recent acquisitions are more well known."

Providing a further catalyst for the shares, Furtado expects "2013 consensus EPS to gradually rise over time as the recent acquisitions are incorporated into the COF platform," and also expects "COF to increase capital returns to shareholders in 2013 which is not likely contemplated by the 2013 EPS consensus estimate."

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


-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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