Capital One: Financial Winner

NEW YORK ( TheStreet) -- Capital One ( COF) was the winner among the largest U.S. financial names on Friday, with shares rising over 2% to close at $56.07.

The broad indexes gained, as investors tried to shrug-off a disappointing report form the U.S. Commerce Department, that first-quarter real gross domestic product grew at an estimated annualized pace of 2.2%, slowing from the a 3.0% pace during the fourth quarter. A revised first-quarter GDP growth rate will be announced on May 31, "based on more complete data."

The Commerce Department said that "deceleration in real GDP in the first quarter primarily reflected a deceleration in private inventory investment and a downturn in nonresidential fixed investment that were partly offset by accelerations in PCE and in exports."

The KBW Bank Index ( I:BKX) rose slightly, to close at 48.84.

Capital One Financial last week reported first-quarter net income available to common shareholders of $1.4 billion, or $2.74 a share, which included a bargain purchase gain of $594 million from the acquisition of ING Direct (USA), as well as "a $160 million benefit related to the company's sale of Visa stock and subsequent reserve adjustments and the absence of approximately $150 million of unique contra-revenue items recorded in the fourth quarter."

Guggenheim Securities analyst Marty Mosby estimated that Capital One's "earnings power rebounded to $1.46" during the first quarter, "as the ING Direct acquisition was accretive, asset quality trends began to improve--further pushing the loan loss reserve release back up to $190 million--and seasonal factors raised revenues while pulling down marketing expenses."

Mosby expects that "the second quarter should benefit even more, as ING Direct will have been a part of COF for the entire quarter, and approximately $40 billion in excess liquidity will be deployed into the acquisition of the HSBC credit card portfolio," which will include $30 billion in domestic credit card loans.

Mosby rates Capital One a "Buy," with a $67 price target, an estimates the company will earn $5.86 a share during 2012, followed by 2013 EPS of $7.21.

Capital One's shares have now returned 33% year-to-date, following a flat return during 2011.

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The shares trade for 1.4 times their reported March 31 tangible book value of $39.37, and eight times the consensus 2013 earnings estimate of $6.87, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $6.37.

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


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

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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.