Capital One Financial CorporationCOF

Morningstar Rating

Stock Research and Analysis

by Michael Kon, CFA

Capital One Financial has revamped its business model in the past few years, and we like the changes.

Just a few years ago, Capital One was a monoline business offering credit cards to individuals throughout the United States. Its main sources of revenue Read more

Bulls Say

Capital One's core strategy provides a competitive advantage in targeting specific customers and pricing risk appropriately. This, coupled with a strong brand name, makes the firm a major player in the industry.

Consumer finance companies typically benefit from rising interest rates because they quickly adjust the rates charged to consumers to offset the higher cost of funds. Additionally, because rate increases generally accompany a strong economy, credit losses usually decrease.

The acquisition of established, deposit-gathering regional banks gives Capital One a great source of cheap funding, which it can use to fund high-yield consumer loans. Read more

Bears Say

The company's models might not predict account behavior as accurately in the prime and superprime segments of the credit card market as they did in the less-competitive subprime segment.

Although its credit risk profile is improving, the firm is still subject to the ebb and flow of the economy. As the economy takes a turn for the worse and unemployment increases, Capital One's results are suffering from higher levels of loan defaults.

Regulators and consumer advocates are taking aim at limiting or eliminating punitive fees like over-limit and late fees that are assessed by consumer finance companies. Companies like Capital One have become increasingly dependent on such fees for income growth. Read more

Strategy

Capital One has a two-prong strategy. The firm is a leading national lender to consumers, its major products being credit cards and auto loans. It also operates banking franchises in different locations Read more

Management

Richard Fairbank has been CEO since 1994. We think he is a visionary who is unafraid to take risks for the sake of protecting the long-term value of the Capital One franchise. While investing alongside a visionary manager requires a certain amount of Read more

Profile

Capital One Financial is a diversified financial institution. It is one of the largest issuers of Visa and MasterCard credit cards in the United States, and it is one of Read more

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