Nomura Securities Upgrades Capital One Financial (COF) to Buy

Nomura Securities upgraded Capital One Financial (NYSE: COF) from Neutral to Buy with a price target of $94.00 (from $75.00).

Analyst Bill Carcache comments, "Since the beginning of 2013, COF shares have underperformed AXP / DFS by 26% / 21%. Looking ahead, we expect COF’s performance to improve, as loan growth resumes and P&L expense headwinds turn into tailwinds. We are upgrading COF shares to Buy (from Neutral) and increasing our price target to $94 (from $75), which implies 1.8x our estimate of 2015 TBVPS of $53.67 and 12x our 2015 EPS estimate of $7.59. We are also raising our 2014 / 2015 estimates to $7.08 (from $6.86) / $7.59 (from $7.14)."

The firm's Buy thesis does not hinge on robust loan growth. They believe COF still stands to benefit even without any help from the macro.

• Loan Growth Set to Finally Turn Positive in 2H14. After shrinking for an extended period, COF’s domestic card loan portfolio is poised to start growing again in 2H14 as runoff abates and headwinds from the attrition of high balance revolvers continue to wane. In addition, we see a third underappreciated driver of growth: the ability for COF to once again offer credit line increases in the aftermath of an OCC interpretation that stifled loan growth. For 2014 / 2015, we are conservatively looking for loan growth of 2.0% / 4.0% but see the potential for significant upside to our forecasts.
• Lower Intangible Amortization Creates a 5% Tailwind to 2014 EPS. Intangible amortization and deal-related expenses have posed significant headwinds for COF in the past but are now set to turn into tailwinds. We estimate that the tailwind from lower amortization and deal-related expenses will be $0.32 / $0.19 per share in 2014 / 2015 (5% / 3% of EPS).

For an analyst ratings summary and ratings history on Capital One Financial click here. For more ratings news on Capital One Financial click here.

Shares of Capital One Financial closed at $80.80 yesterday.

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