Will Capital One Financial (COF) Stock Be Hurt Today by Subprime Auto Finance Probe?

NEW YORK (TheStreet) --Capital One Financial Corp. (COF) was issued a subpoena by the New York district attorney's office as part of an investigation into the company's subprime auto finance practices, Reuters reports.

The financial services holding company is one of several other lenders, including: Santander Consumer USA Holdings Inc.  (SC) , Ally Financial Inc.  (ALLY) , and GM Financial, that were also issued subpoenas by a variety of law enforcement authorities and regulators, Reuters added.

Officials are looking into the subprime auto finance industry to determine if lenders discriminated against women and minorities, the Wall Street Journal reported in August.

Capital One has the second largest market share, behind Wells Fargo (WFC) , in the used car market. The used car market usually has more subprime borrowers than new vehicle businesses, Reuters noted.

Shares of Capital One are lower by 0.44% to $82.31 in mid-afternoon trading on Tuesday.

Separately, TheStreet Ratings team rates CAPITAL ONE FINANCIAL CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate CAPITAL ONE FINANCIAL CORP (COF) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The debt-to-equity ratio is somewhat low, currently at 0.96, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
  • CAPITAL ONE FINANCIAL CORP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, CAPITAL ONE FINANCIAL CORP increased its bottom line by earning $7.29 versus $6.70 in the prior year. This year, the market expects an improvement in earnings ($7.63 versus $7.29).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.0%. Since the same quarter one year prior, revenues slightly dropped by 1.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • You can view the full analysis from the report here: COF Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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