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A Look at Capital One’s Discounted Valuations

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Capital One’s valuations

Capital One Financial Corporation’s (COF) price-to-earnings ratio stood at ~9.1x on an NTM (next-12-months) basis, compared to its peer average of ~16.7x. Among COF’s competitors, Discover Financial Services (DFS), American Express (AXP), and Mastercard (MA) have price-to-earnings ratios of ~9.1x, ~12.9x, and ~28.3x, respectively, on an NTM basis.

In the second quarter, Capital One could benefit from growth in its consumer loan portfolio, sparked by the improving US economy. Its competitors such as Mastercard and Visa (V) could benefit from increased payment transactions. However, global factors such as tensions surrounding tariffs and trade wars could influence the performance of consumer finance companies in 2018.

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What’s expected in Q2 2018?

The US economy is witnessing an uptrend as a result of lower unemployment levels, which could improve Capital One’s (COF) second-quarter results. These factors could lead to a rise in credit card loans, possibly improving COF’s loan book and interest income.

However, a dip in corporate loans could negatively impact Capital One’s performance in the second quarter. This drop is expected to result from a strong earnings season and lower taxes, leaving corporations with increased cash flows.

Capital One has a price-to-earnings ratio of ~11.1x on an LTM (last-12-months) basis. Its peers Discover Financial Services, American Express, and Mastercard have LTM price-to-earnings ratios of ~11.1x, ~15.3x, and ~40.8x, respectively.

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