Capital One: Credit Quality Loser

NEW YORK ( TheStreet) -- Capital One Financial ( COF) was the loser among the largest U.S. financial names on Thursday, with shares declining over 2% to close at $54.77.

The broad indexes all pulled back slightly, after the Labor Department reported that first-time unemployment claims for the week ended Nov. 4 rose by 78,000 to 439,000 from the previous week's upwardly revised 361,000, while economists were expecting jobless claims of 375,000, according to The new jobless claims also greatly exceeded the four-week average of 383,750. The U.S. Labor Department said the figures for last week were affected by Hurricane Sandy, with power outages causing contributing "to the decrease in initial claims as state systems in New York were unable to take claims from claimants," while the hurricane caused initial jobless claims to increase in New Jersey and Connecticut.

Shares of Wal-Mart Stores ( WMT) were down 4% to close at $68.72, after the retail giant on Thursday reported net income of $3.6 billion, or $1.08 a share for its fiscal third quarter ended Oct. 31, increasing from $3.3 billion, or 97 cents a share, a year earlier, and exceeding by a penny the consensus estimate among analysts polled by Thomson Reuters.

Despite the bottom-line earnings beat, Wal-Mart's fiscal third-quarter sales of $113.2 billion missed the consensus estimate of $113.9 billion.

the KBW Bank Index ( I:BKX) was up slightly to close at 46.85

Capital One's shares have now returned 30% year-to-date, following a flat return during 2011.

The shares trade for 1.4 times their reported Sept. .30 tangible book value of $40.17, and for eight times the consensus 2013 earnings estimate of $7.02 a share. The consensus 2014 EPS estimate is $7.39.

The company reported on Thursday that during October, its annualized charge-off rate for managed domestic credit card loans increased to 4.25%, from 3.93% in September, and 3.96% during October 2011.

The 30+ days delinquency rate for domestic managed cards also increased sequentially, to 3.66% in October from 3.52% the previous month, although delinquencies were down from 3.73% a year earlier.

Credit Suisse analyst Moshe Orenbuch reiterated his neutral rating for Capital One, with a $54 price target, but increased his fourth-quarter domestic card loss estimate to by $50 million to $875 million, and lowered his 2012 EPS estimate for the company by seven cents to $5.53, while maintaining his 2013 EPS estimate of $6.70 and his 2014 estimate of $7.25.

Capital One purchased HSBC's ( HBC) U.S credit card portfolio in October, and Orenbuch said that Capital One's "domestic credit card losses increased further, likely as a result of the seasoning" of the acquired loans.

The analyst noted that "COF had indicated in its 3Q call that the credit mark would have minimal (single basis point) impact on loss rates in the coming months. Nonetheless, this will reduce near term earnings expectations, and likely concern investors about intermediate term expectations."

COF Chart COF data by YCharts

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-- 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.