Capital One: Financial Loser
The broad indices ended mixed after the Federal Reserve said U.S. industrial production declined by 0.1% during January, following an upwardly revised increase of 0.4% during December. Economists had expected industrial production to climb 0.2% during January, according to Zacks.
On the other hand, the Federal Reserve Bank of New York on Friday said the Empire State Manufacturing Survey for February indicated "that conditions for New York manufacturers improved for the first time since the summer of last year." The survey's general business conditions index "rose into positive territory for the first time since July 2012, climbing 18 points to 10," while economists expected the reading to be flat from the previous month.
The KBW Bank Index (I:BKX) was down 1% to close at 55.11, with all but seven of the 24 index components showing declines.
Capital One's shares are down 7% this year, following a 36% return in 2012. The shares trade for 1.3 times their reported Dec. 31 tangible book value of $40.23, and for 7.9 times the consensus 2014 earnings estimate of $6.83, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $6.45.
One of the reasons the stock has underperformed so far this year is that the company reported disappointing fourth-quarter results , which CFO Gary Perlin blamed on "seasonal expense and margin trends." But on Jan. 17, Perlin also said "fourth-quarter results give us a good picture of what to expect in terms of pre-provision earnings in 2013."
Capital One early on Friday released its monthly credit card charge-off and delinquency statistics for January, which JPMorgan Chase analyst Richard Shane said "were roughly in line with seasonal trends." However, Capital One's release showed that total U.S. credit card loans held for investment totaled $80.5 billion as of Jan. 31, which was a decline of more than 3% from a month earlier.
Shane said the "sharp run-off in U.S. card balances underscores Capital One's growth challenges in 2013."
Capital One CEO Richard Fairbank said during an investor conference on Tuesday that "the only issue that we face at the moment is that demand is pretty soft. The consumer is clearly deleveraging but even relative to our own expectations."
Shane estimates that Capital One's total U.S. credit card loans will decline to $78.7 billion at the end of the first quarter, but also said that lower card balances would be offset by lower provisions for loan loss reserves. "In the past, this has led to positive earnings surprises."
The analyst rates Capital One "overweight," with a price target of $65.