Capital One: First-Quarter Bounceback Winner (Update 1)

Updated with market close information and additional information on Capital One.

NEW YORK ( TheStreet) -- Capital One ( COF) was the big winner on Friday among the largest U.S. financial names, with shares rising over 6% to close at $56.17.

The Dow Jones Industrial Average ended with a slight gain, held back by General Electric ( GE), which dipped 4% to close at $21.75, after a disappointing first-quarter earnings report.

GE beat the consensus estimate among analysts polled by Thomson Reuters with a first-quarter profit of $4.1 billion, or 39 cents a share. However, the industrial giant reported weak revenues in most categories, with revenue in the Power & Gas segment down 26% year-over-year. First-quarter total industrial revenue was down 6% from a year earlier.

The S&P 500 ( SPX.X) and NASDAQ Composite indices ended with 1% gains, as investors continued to watch developments in Boston.

The KBW Bank Index ( I:BKX) was up 1.5% to close at 54.85, with all but two of the 24 index components ending the session with gains.

Shares of State Street ( STT) of Boston rose 1% to close at $56.93. The bank beat the first-quarter consensus with earnings of $443 million, or 96 cents a share, as revenue increases in several key areas more than offset a sharp sequential decline in net interest revenue. Please see TheStreet's earnings coverage for more on State Street's results.

Capital One

Capital One late on Thursday bounced back from a lousy fourth quarter, with a strong first-quarter earnings report.

The McLean, Va., credit card lender reported first-quarter net income of $1.1 billion, or $1.79 a share, compared to $843 million, or $1.41 a share in the fourth quarter, and $1.4 billion, or $2.72 a share, in the first quarter of 2012.

The year-earlier period included a $594 million bargain purchase gain from the acquisition of ING Direct (USA). Excluding that gain, first-quarter 2012 earnings were $809 million, or $1.56 a share, underscoring Capital One's success in the most recent quarter.

Capital One's net interest income increased to $4.570 billion in the first quarter from $4.528 billion in the fourth quarter and $3.414 billion in the first quarter of 2012. The year-over-year increase reflected the acquisition of HSBC's U.S. credit card portfolio in the second quarter of 2012.

Capital One's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- expanded during the first quarter to 6.17% from 6.52% the previous quarter and 6.20% a year earlier.

The company's noninterest income declined to $981 million in the first quarter from $1.096 billion in the fourth quarter and $1.521 billion a year earlier. The sequential decline reflected $97 million provision for mortgage repurchase claims in the first quarter. There was no provision for mortgage putback claims in the fourth quarter. The provision was $169 million in the first quarter of 2012. The year-over-year noninterest income decline reflected the prior period's gain on the ING Direct (USA) purchase.

First-quarter non-interest expense totaled $3.028 billion, declining from $3.255 billion in the fourth quarter, and increasing from $2.504 billion in the first quarter of 2012.

The provision for credit losses -- which is the amount added to loan loss reserves each quarter, thus lowering pretax earnings -- was $885 million in the first quarter, declining from $1.151 billion in the fourth quarter, and increasing from $573 million a year earlier.

Oppenheimer analyst Chris Kotowski rates Capital One "outperform," with a 12 to 18 month price target of $69. In a note to clients late on Thursday, the analyst wrote that "COF's 1Q13 was a tad better than we expected and way better than our worst fears."

While the first-quarter results were padded with a release of loan loss reserves that added 23 cents a share to the bottom line, the results were "still a dime better than expected," Kotowski wrote.

Kotowski raised his 2013 EPS estimate for Capital One to $6.71 from $6.48, and his 2014 EPS estimate to $6.86 from $6.79. "COF remains one of our top picks," he wrote. "Operating return on tangible common equity was 16.5%, the card business is resilient and granular with generally good earnings visibility and should fetch more that 8x current year's earnings."

Capital One's shares are down 3% this year, following a 38% return during 2012. The shares trade for 8.4 times the consensus 2014 EPS estimate of $6.66. That is one of the lowest forward price-to-earnings valuations among large U.S. banks.

COF Chart COF data by YCharts

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

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

>Contact by Email.

RELATED STORIES:






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 TheStreet.com 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.

More from Investing

Canopy Growth: First Cannabis Firm on the NYSE Fails to Generate Buzz

Canopy Growth: First Cannabis Firm on the NYSE Fails to Generate Buzz

Bitcoin Today: Prices Continue Skid Toward $7,000 as DOJ Launches Investigation

Bitcoin Today: Prices Continue Skid Toward $7,000 as DOJ Launches Investigation

Video: This Startup Connects Buyers and Sellers of Legal Marijuana

Video: This Startup Connects Buyers and Sellers of Legal Marijuana

9 Best Investment Books for Beginners

9 Best Investment Books for Beginners

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)