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A Look at Capital One’s Valuations

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Dec. 4 2020, Updated 10:53 a.m. ET

Price-to-earnings ratios

Capital One Financial Corporation’s (COF) PE (price-to-earnings) ratio is 8.77x on an NTM (next-12-months) basis compared to its competitors’ average PE ratio of 20.79x. The company’s peers have the following price-to-earnings ratios on an NTM basis:

  • Mastercard Incorporated (MA): 28.06x
  • Visa Inc. (V): 25.71x
  • Discover Financial Services (DFS): 8.60x

The growth of digital payments is expected to drive the performance of the payment processing companies covered in this series. In the second quarter, these companies are expected to see a boost from falling unemployment rates and increasing spending volumes. However, the prevailing trade tensions between the United States and several of its major trading partners could hamper their growth.

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Drivers for growth in Q2 2018

Payment processors such as Mastercard and Visa are expected to be aided by lower unemployment rates, which could boost spending. Discover Financial Services and Capital One are expected to be helped by increased interest income following the Fed’s interest rate hikes. 

Credit card loans are expected to rise on the back of the strong US economy. However, lower consumer confidence resulting from the ongoing trade wars might restrict the growth opportunities for these companies. 

Mastercard expects that the Indian market offers significant opportunities. This market has been promoting digital payments following the Indian government’s demonetization program. This trend indicates that the Indian government supports digital payments. Mastercard also has a favorable outlook for Europe.

Capital One’s price-to-earnings ratio is 10.85x on an LTM (last-12-months) basis. Other payment processing companies (IYF) have the following PE ratios on an LTM basis:

  • Mastercard Incorporated (MA): 40.98x
  • Visa Inc. (V): 37.71x
  • Discover Financial Services (DFS): 10.59x

In the final article in this series, we’ll study Wall Street analysts’ recommendations for these payment processing companies.

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