CIF Stock Recommendation Report (Fall 2012)

Transcription

1 Date:_10/26/2012 AnalystName:_KristenHecht_ CIFStockRecommendationReport(Fall2012) CompanyNameandTicker:_CapitalOneFinancialCorporation(COF) Section(A)Summary RecommendationBuy:YesNo TargetPrice:$75 Stop LossPrice:$51 Sector:Financials Industry:CreditServices MarketCap(inBillions): $ CurrentPrice:$60.00 Morningstar(MS)Fair ValueEst.:$ WKHi: $61.33 MSFVUncertainty: High 52WKLow: $39.30 MSConsiderBuying: $42.00 #ofshrs.o/s(inmillions): 581 EBOValuation:$47.13 MSConsiderSelling: $ EPS(TTM):6.11 EPS(FY1):6.36 EPS(FY2):7.05 MSStarRating: 3Stars NextFiscalYr.End Year : Month : 2012Dec LastFiscalQtr.End: LessThan8WK: YN IfLessThan8WK,next EarningsAnn.Date: AnalystConsensus Recommendation: Outperform ForwardP/E:8.51 MeanLTGrowth:9.07% PEG:.88 Beta:1.75 %Inst.Ownership:88.63 Inst.Ownership Net Buy:YN ShortInterestRatio:1.17 RatioAnalysis Company Industry Sector P/E(TTM) P/S(TTM) P/B(MRQ) P/CF(TTM) DividendYield TotalDebt/Equity(MRQ) NetProfitMargin(TTM) ROA(TTM) ROE(TTM) Shortas%ofFloat:2.00% 1

2 2 Summary Providebriefsummaryofyouranalysisineachsection thatfollows CompanyProfile:CapitalOneisafinancialservices companywiththreebranches,creditcardservice, consumerbanking,andcommercialbanking.they operateintheu.s,ukandcanada. FundamentalValuation:Thefundamentalvaluefora 20 yearsupergrowthperiodis$47.13,whichisbelow thecurrentprice.thisisconcerningbutmaybeskewed bythehighbetatypicalofthecreditserviceindustry. RelativeValuation:Usingthevaluemetricsofit s competitors,theimpliedpriceofcapitaloneshows thatitisconsiderablyundervalued. RevenueandEarningsEstimates:Exceptforthe secondquarterof2012,capitalonehascontinuedto beatrevenueandearningsestimates. AnalystRecommendations:Withameanratingof1.89 fromreutersthereisabuyrecommendationfromthe analysts. InstitutionalOwnership:Therehasnotbeena significantamountofchangeininstitutionalownership recently.alargeamountofcapitalone sstocksare heldbyinstitutions. ShortInterest:Shortinteresthasdecreased significantlyoverthelastyear,andcapitalonehas smallshortpercentoffloatandshortinterestratios, whicharebullishsignals. InvestmentThesis CapitalOneFinancialCorporation wouldbeagoodbuyforthecif. Therelativevaluationshowstheyare undervaluedusingallthemetrics. TheyhaverecentlyacquiredING DirectandHSBCdomestic credit portfolio,andthesebothshowedto increaseprofitforcapitaloneinthe thirdquarter Thirdquarterearningswerejust released,andtheybeatanalysts estimatesandincreasednetincome andearningspershare. Theyhavestrategicleadershipunder RichardFairbank,whowasacofounderandisstillpresident,CEOand ChairmanoftheBoard.Heiswilling leadwithanaggressivegrowth strategy. ReutersandMorningstarandother onlinefinancialsitesagreethat CapitalOneisabuy. Theyhavesignificantownershipby institutions,whichtendtoknowmore thanthepublic. Theshortinteresthasdramatically decreasedwithinthelastyear,and theyhaveasmallshort%offloatas wellasshortinterestratio. StockPriceChart:ThestockpricechartsshowCapital OnegenerallyfollowingtheS&P500,outperforming AmericanExpress,andbeingoutperformedbyVisa.

3 Section(B) CompanyProfile(twopagesmaximum) CompanySummary CapitalOneFinancialCompanyisadiversifiedfinancialservicesholdingcompany.Originally foundedin1988byrichardfairbankandnigelmorrisasconsumerlendingcompany,capital OnehassincegrowntobeaFortune500company.Theyareoneofthenationstop tenlargest banksbasedoffofdeposits.it s1,000branchlocationsarelocatedmainlyinnewyork,new Jersey,Texas,Louisiana,Maryland,VirginiaandtheDistrictofColumbia(CapitalOne.com).They offeranarrayoffinancialservicestoconsumers,smallbusinessesandcommercialclients.they operatebothdomesticallyandinternationallyandhavethreemainsegments.thefirstsegment isthecreditcarddivision,whichconsistsofconsumerandsmallbusinesscardlendinginthe UnitedStates,CanadaandtheU.K.Thissegmentgenerated$2.3billionofnetincomein2011 (CapitalOne10KReport2011).Thesecondsegmentisconsumerbanking,whichconsistsof branchbasedlendinganddepositoryservicesforconsumersandsmallbusinessesaswellas autolendingandconsumerhomeloanlending.thissegmentgenerated$890millioninnet incomein2011(capitalone10kreport2011).thefinalsegmentiscommercialbanking,where theyofferlendinganddepositgatheringtomiddlemarketcustomers,aswellastreasury managementservices.thissegmentgenerated$532millioninnetincomein2011(capitalone 10kReport2011). BusinessModel,Competition,EnvironmentandStrategy CapitalOnewasoriginallyamonolinebusinessthatofferedcreditcardstodomestic consumers,buthasgrownandexpandeddrasticallysinceitwasoriginallyfounded.nowthey offeradiverserangeoffinancialservices.theco founderofcapitalone,richardfairbankis currentlystillthechairmanoftheboard,ceo,andpresidentofthecompany.hepursuesan aggressivestrategythatincludesmajoracquisitions.injanuaryof2011capitaloneacquitted thecreditcardloanportfolioofhudsonbaycompany,infebruaryof2012capitalone acquiredingdirectandit ssubsidiaries,andinapril2012capitaloneacquiredhsbc sbillion dollarcreditportfolio(capitalone.com).theseacquisitionshaveprovedtobebeneficialtothe company,providingsolidcontributionstothethirdquarterearnings.richardfairbank commentedthat CapitalOnepostedsolidresultsacrossallofourbusinessesinthethird quarter,includingstrongcontributionsfromingdirectandthehsbcu.s.creditcardbusiness (CapitalOnePressReleaseOctober182012). ItissomewhatdifficulttoplaceCapitalOneFinancialCorporationinaspecificindustry. AlthoughReutersandMorningstarbothclassifyCapitalOneFinancialCorporationasbeingin thecreditservicesindustry,ithasamorediversifiedbusinessmodelthanvisa,mastercard,and 3

4 AmericanExpress.CreditcardservicesisonlyonepartofCapitalOne srevenuemodel,they alsohaveconsumerandcommercialbanking,treasurymanagement,andhomeandautomobile financing.however,sincethecreditcardsegmentremainsthelargestsegmentofcapitalone, thatistheindustrythatareclassifiedin.clearlyvisaandmastercardholdthelargestshareof thecreditcardmarketandhaveconsiderablemarketcapitalizationandarealwaysasignificant threattocapitalone.however,ascapitaloneisoneofthelargestissuersofvisaand MasterCardintheUnitedStates,theirbusinessesaresomewhatintertwined.CapitalOnehasa significantamountofcompetitioninallareasoftheirbusiness,butastheycontinuetopursuea growthstrategythroughacquisitionsandinnovationstheywillbeabletosetthemselvesapart. RevenueandEarningsHistory REVENUE - QUARTERLY RESULTS (IN MILLIONS) FY (12/12) FY (12/11) FY (12/10) 1st 4,935 4,082 4,289 Qtr 2nd 5,055 3,993 3,904 Qtr 3rd 5,782 4,154 4,016 Qtr 4th NA 4,050 3,962 Qtr Total $15,772 $16,279 $16,171 Financial Data in US Dollar EARNINGS PER SHARE - QUARTERLY RESULTS FY FY FY (12/12) (12/11) (12/10) 1st $2.74 $2.24 $1.41 Qtr 2nd $0.16 $2.00 $1.34 Qtr 3rd $2.03 $1.78 $1.77 Qtr 4

5 4th Qtr NA $0.84 $1.54 Total $4.93 $6.86 $6.06 Discussanypatterninrevenueandearnings(e.g.,increasingyearoveryear;seasonal;etc.) CapitalOnehasseenrevenuesincreaseoverthelastfourquarters,andannualrevenuegrow overthelastthreeyears(assumingthatthefourthquarterof2012meetsreasonable expectations).eachquarterhasincreasedfromayear to yearbasiswiththeexceptionofthe secondquarterin2011.iseethisasapositivesignthatthelastfourquartershaveshown growth,andcomparingquartersyear to yeartheyhavebeengrowingaswell.ifthefourth quarterhasanysortofreasonablerevenuewewillsee2012ashavingaverylargerevenue growthfrom2011. Theearningspersharehashadrelativelysteadygrowthyear to yearwiththeobvious exceptionofthesecondquarterof2012.duringthesecondquartercapitalonefinishedit s somewhatmessyacquisitionofhsbc s27.6billiondollarcreditportfolioaswellassettling $210milliondollarsincivilpenaltiesandconsumerrefunds.Howeverinthefollowingquarter thecompany sepswasupto$2.03andifthefinalquarterproducesareasonableeps,capital OnecouldstillshowannualEPSgrowthin

6 Section(C) FundamentalValuation(EBO) Includethefollowinghere: Copy/pastecompletedFundamentalValuation(EBO)Spreadsheet COF PARAMETERS FY1 FY2 Ltg EPS Forecasts % Model 1: 12-year forecasting horizon (T=12). Book value/share (last fye) and a 7-year growth period. Discount Rate 14.70% Dividend Payout Ratio (POR) 3.08%!"#$%#&'()*"($'&$*'&%$+#&,-.%&,#/0"$,#&,(&1(23&()*&%,(3$4#&'#+.5# Next Fsc Year end 2012 You only need to input values to cells highlighted in "yellow" Current Fsc Mth (1 to 12) 10 The rest of the spreadsheet is calculated automatically Target ROE (industry avg.) 11.86% Please read "Guidelines_for_FundamentalValuation_ProfLee_Spreadsheet" file carefully Year Long-term EPS Growth Rate (Ltg) Forecasted EPS Beg. of year BV/Shr Implied ROE ROE (Beg. ROE, from EPS forecasts) Abnormal ROE (ROE-k) growth rate for B (1-POR)*(ROEt-1) Compounded growth growth*aroe required rate (k) Compound discount rate div. payout rate (k) Add to P/B PV(growth*AROE) Cum P/B Add: Perpetuity beyond current yr (Assume this yr's AROE forever) Total P/B (P/B if we stop est. this period) Implied price Check: Beg. BV/Shr Implied EPS Implied EPS growth Inputs(providebelowinputvaluesusedinyouranalysis) EPSforecasts(FY1&FY2): 6.36%(FY1)and7.05%(FY2) Long termgrowthrate: 9.7% Bookvalue/share(alongwithbookvalueandnumberofsharesoutstanding): Bookvalue: $29,666Million #ofsharesoutstanding: Bookvalue/share: $ Dividendpayoutratio: 3.08% Nextfiscalyearend: December2012 Currentfiscalmonth: 10 TargetROE: 11.86% Output 6

7 Abovenormalgrowthperiodchosen:2years EBOvaluation(Impliedpricefromthespreadsheet):$47.13 SensitivityAnalysis EBOvaluationwouldbe(youcanincludemorethanonescenarioineachofthefollowing): $43.5 ifchangingabovenormalgrowthperiodto4years $47.13 ifchanginggrowthratefrommean(consensus)tothehighestestimate12% $47.13 ifchanginggrowthratefrommean(consensus)tothelowestestimate8% $69.62 ifchangingdiscountrateto10% $47.13 changingtargetroeto7.14%(roettm) WhileIwasinitiallyveryconcerneduponexaminationofthefundamentalvaluationworksheet thatcapitaloneisactuallyanovervaluedstockwithlittleroomforgrowth,someinputs seemedtobeskewingthenumbersdownward.capitalone sbetais1.75whichwhile seeminglyveryhighisconsistentwiththeindustryandsectoritisin.thisbetadrivesthe discountrateupandthatbroughtthevaluedownsubstantially.howeverthebetausedis reportedfromreuters.com,andwhenilookedintootherfinancialsitessuchasyahoofinance, theyreportedthebetaaslowas1.2,whichwouldleadadiscountrateofabout10%.inthe sensitivityanalysisiusedthisdiscountrate,andfoundthatfora2 yearsupernormalgrowth period,thefundamentalvaluewouldbe$69.62,whichabovethecurrentpriceofthestock. Howeveroverall,theEBOvaluationisstillabearishsignal. 7

8 Section(D) RelativeValuation!"# $%&'(#)*( +&,'-'./(+/0-1&0% #2,3&,4 $%&'(56( : ;"+( <&=>% 79? 79!# B&1% ,230I(;&0% D$;JH K(G,(&L% ;&0-2 66$ 66$ <MB ()))))!!!"#$#%&' ())))))))))))))))))!*&%+, ())))))))))))))))))))))))))))))))) $%!+!,%*$!,%+-. '%,, -%/*!'%-/. '%-!!!%'' ++%'! $OMB ()))))))#+"'$,%*- ()))))))))))))))))) -#-%$' ()))))))))))))))))))))))))))))))/#%++!$%$/!&%&-. '%,-,%!$ **%&,. '%/$ &%'+ /-%+# OP7MB ())))))) +/"/'*%+& ()))))))))))))))))))) ##%,, ()))))))))))))))))))))))))))))))))-%$*!!%&-!'%*/.!%!# *%/$ /#%&-. '%!*!%&+!'%$ Q#?MB ()))))))/'"!!#%*/ ()))))))))))))))))))) -'%/# ()))))))))))))))))))))))))))))))))-%/,,%*&!'%+$. '%&& /%/'!&%&$. '%!/ /%+& ()))))))*-"&-/%#- ()))))))))))))))))))) +'%'' ())))))))))))))))))))))))))))))))) $%'# &%#!,%$'. '%&& '%,' $%/&. '%!/!%$+,%* : <&=>% 79? 79!# <MB (!*+%#+ (+$%-# (/&/%'' (!,$%'/ (*$#%'' (-/#%&$ $OMB (!/-%,* (+-%*/ (+!!%** (!*!%*/ (/$-%$$ (!#,%'* OP7MB (&*%-# ($&%-- (/!&%'' (+!%-/ (+*%-! (+,%'* Q#?MB (++%!# (+'%!* (!-+%+$ (#+%#& (,!%*+ (#*%$- T-.I (!*+%#+ ($&%-- (+!!%** (!,$%'/ (*$#%'' (-/#%&$ 523 (++%!# (+'%!* (!-+%+$ (#+%#& (+*%-! (#*%$- $%4-&' (!'-%!, (+#%&& (/#'%'' (,+%*$ (!&*%'$ (!!-%'* Fromthetoppanel WhenlookingattheforwardP/Eofallfivestocks,itisclearthatVisaandMasterCardhave muchhigherp/ethanamericanexpress,discover,andcapitalone.thisisbecausetheyare largercompaniesthataretrustedinthemarketplace,whiletheotherthreearesmallerandstill pursuinggrowth.capitalonehasthesmallestp/e,whichibelieveisbecausetheyarestill activelypursuinggrowth,andtheyareamuchnewercompanythantheothers.thepegratios forallfivecompaniesarerelativelysimilar,thelargestbeing1.15(americanexpress)andthe smallestis.88(discoverandcapitalone).thep/b(mrq)ratiosvarygreatlyfrom.9to9.17. CapitalOnehasthesmallestP/Bratiobyquiteabit,itisevenunder1.Traditionallythismeans thecompanyisundervaluedorthereareseriousissueswiththecompany.ithinkthatinthis caseitcouldmeanthecapitaloneisundervalued.whenlookingatbothp/sandp/cfvisaand MasterCardhavemuchlargerratiosthantheotherthreestocks.(PleasenotethatReuterswas 8

9 unabletoprovidep/cfforall5fivestocks,soallfivestock sp/cfvaluecamefrom msnmoney.com).onceagainithinktheyhavelargerratiosbecausetheyarelarger,older, companiesthatareexperiencinglessgrowththanthesmallercompanies.capitalonetendsto havethelowestmetricsofallit scompetitors,exceptforp/cf.thiscouldbeeitherconcerning, thatcapitaloneisexperiencingseriousissues,orbeabullishsignalthattheyareavery undervaluedcompany. Comparetheimpliedpricesderivedfromvariousvaluationmetrics.Alsocomparethoseimplied pricetothestock scurrentprice,and52 weekhighandlow. Theimpliedpricesderivedfromthevariousvaluationmetricsrangefrom$53.74to$ ThelargestimpliedpricederivesfromcomparingMasterCard sp/bvaluetothatofcapitalone, andthelowestimpliedpricecomesfromcomparingdiscover sp/cfratio.ifwethrewoutthe fewtopandbottomoutliers,themajorityoftheimpliedpricessuggestcapitaloneiscurrently undervalued.thecurrentpriceofcapitaloneis$60.00(october25 th ),it s52weekhighis $61.33andthe52weeklowis$39.30.The52 weeklowislowerthaneventhelowestimplied value.allbutthreeofthe24impliedprices(high,low,andmedianforallvaluemetrics)are greaterthanthecurrentprice.whendecidingwhethertheseimpliedpricesmightbeaccurate, weneedtolookatthehistoryofcapitalone.itisacompanythathasexperiencedconsiderable growthinthelastdecade,andshowssignsthatthisgrowthwillcontinue.theyhavemade somelargeacquisitions,andibelievethatthemarkethasnotquitecaughtupwithwhattheir currentvaluemightbe.thelowestmedianimpliedpriceis$65.88,whichishigherthanthe52 weekhigh.therecouldbeanopportunityforprofit. Fromthebottompanel Discussthevariousimpliedpricesofyourstockderivedfromcompetitors ( comparables ) multiples.howdifferentarethepricesderivedfromthevariousvaluationmetrics?noteany valuationmetricsthatseemtoyieldoutlierpricesandexplainwhy(hint:isthatbecausethat particularvaluationmetricsisnotveryrelevantfortheindustry?doyoubesttoprovide convincingarguments). ThelowestimpliedpricesfromCapitalOnecomefromthePEG,andthehighestcomefrom P/B.ThereasonwhytheimpliedpricefromP/Bissohighcanbeeasilyexplainedbythehuge differenceincapitaloneandit scompetitor sratios.pricetobookisthecurrentpricedivided bybookvalue.sohavingap/bunderonemeansthatinvestorsarecurrentlypayinglessthan thebookvalueofthecompany.thiscouldbeanopportunityforcapitalone.thelowest impliedpricescomefromthepegratios.thepegratioisthep/eratiodividedbyannualeps 9

10 growth,soessentiallyitiswhatinvestorsarewillingtopayforeachdollarearnedtakinginto accountthefuturegrowthofearnings.onereasonwhythepegratioandforwardp/eimplied pricesmaybelowerthantheothermetricsisthatinthefinancialsector,thep/eratioisnot usedasmuchasaaccurateindicatorofvalueasitisinotherindustries. Foreachvaluationmetrics,Comparethecurrentpriceand52 weekhigh/lowofyourstockto thehigh lowrangederivedfrommultiplesofitscompetitors. WiththeexceptionofthelowvaluederivedfromthevalueratioandtheP/CFmultiplesofit s competitors,allthelow sarehigherthanthe52 weeklowandthecurrentpriceofcapitalone. Allofthemedianprices,andthehighvaluesforeachvaluationmetricarehigherthatthe currentprice,the52 weeklowandthe52 weekhigh,somebyhugeamounts.thissuggests thatcapitalonemaybesignificantlyundervaluedatthistime. Amongthevaluationmetricsanalyzed,whichonesdoyouthinkaremostrelevantasa valuationtoolforyourstock? TraditionallythefinancialsectorusesPricetoBookasthemostusefulvaluationmetric,which inthiscasewouldbeaverygoodsignforcapitalone.themedianimpliedpricederivedfrom P/BforCapitalOneis$250.00,whichisfarabovewhattheyarecurrentlytradedatandthe52 weekhigh. 10

11 Section(E) RevenueandEarningsEstimates HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Sep-12 5, , Quarter Ending Jun-12 5, , Quarter Ending Mar-12 4, , Quarter Ending Dec-11 4, , Quarter Ending Sep-11 3, , Earnings (per share) Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Quarter Ending Sep Thecompanydoeshaveahistoryofsurprisingthemarket,moresowiththeearningspershare thantherevenues.inthelastfivequarters,thesmallestsurprisetothemarketconcerningeps was55.26,whileontherevenuesidethelargestsurprisetothemarketinthelastfivequarters was13.93,with3beingbelow3%.allofthesurprisestothemarkethavebeenpositivewith theexceptionofrevenueinthesecondquarterof2012andtheepsinthesecondquarterof 2012andlastquarterof2011.OnereasonthatbothrevenueandEPShadanegativesurprisein thesecondquarterof2012wasthecomplicatedandmessyacquisitionofhsbc.thesurprises weremorenotableforeps,withthelargestsurprisebeing 42.67%.Howevertherewereno 11

12 notabledropsinthestockpriceinjuneorjulyof2012,infactthestockcontinuedasteady climb.thesameholdstruefordecember2011andjanuary2012,therewereonlysmalldrops inwhatwasinlargeaclimbinthestockprices. CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter Ending Dec , , , , Quarter Ending Mar , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Quarter Ending Dec Quarter Ending Mar Year Ending Dec Year Ending Dec LT Growth Rate (%) Reviewtherangeandtheconsensusofanalysts estimates.(1)calculatethe%differenceofthe high estimatefromtheconsensus(mean);(2)calculatethe%(negative)differenceofthe low estimatefromtheconsensus;(3)arethedivergentmorenotableforthecurrentorout 12

13 quarter,fy1orfy2,revenueorearnings?(4)notethenumberofanalystsprovidingltgrowth rateestimate.itthatroughlythesameasthenumberofanalystsprovidingrevenueand earningsestimates? %differencehighandmean %differencelowandmean Sales QDec 12 19% 10.94% QMarch % YearDec % 4.9% YearDec % 9.36% EPS QDec % 16.46% QMarch % 21.67% YearDec % 22.48% YearDec % 15.89% LTGrowthRate 19.17% 17.53% Thedivergentismorenotableforearningsthanrevenue,whichseemstobeatrendforCapital OnethatEPShashadlargersurprisesthanrevenue.Thedivergentisalsomorenotableforthe out quarterthancurrent,andforfy2thanfy1.thismakessenseastheestimatesarefarther out.therearesignificantlylessanalystsprovidingestimateforltgrowthrate CONSENSUS ESTIMATES TREND Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Current 1 Week Ago 1 Month Ago 2 Month Ago 1 Year Ago SALES (in millions) Quarter Ending Dec-12 5, , , , ,

14 Quarter Ending Mar-13 5, , , , , Year Ending Dec-12 21, , , , , Year Ending Dec-13 22, , , , , Earnings (per share) Quarter Ending Dec Quarter Ending Mar Quarter Ending Dec Quarter Ending Dec Reviewrecenttrendofanalysts consensus(mean)estimatesonrevenueandearnings.(1)are theconsensusestimatestrendingup,down,orstaythesame?(2)isthetrendmorenotablefor thenear orout quarter,fy1orfy2,revenueorearnings? TheconsensusestimatesaretrendingupinbothrevenuesandEPS,withtheexceptionofone weekagowheningeneraltheestimateswentdownforepsandrevenue.howevertheywent backupconsiderablyinthecurrentcolumn.iassumethisisbecauseqe3wasreleasedduring thattimefram.thereisnosignificantdifferenceinnearoroutquarter,butthereisaslightly highertrendupinfy1thanfy2foreps. ESTIMATES REVISIONS SUMMARY Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down 14

15 Revenue Quarter Ending Dec Quarter Ending Mar Year Ending Dec Year Ending Dec Earnings Quarter Ending Dec Quarter Ending Mar Year Ending Dec Year Ending Dec Reviewthenumberofanalystsrevisingupordowntheirestimates(bothrevenueandearnings) inthelastandlastfourweeks.(1)notewhethertherearemoreupordownrevisions;(2)are therevisionspredominantlyonedirectional?(3)anynotabledifferencelastweekversuslast fourweeks,revenueversusearnings? Overalltherearemoreuprevisionsthandownrevisions.Especiallyforthequarterending December2012andtheyearendingDecember2012.Therevisionstendtobemoreupward trendingthandownwardtrending.althoughtheanalystsdidtrendmoredownwardthan upwardforthequarterendinginmarch13forbothrevenueandearningsinthelastweekas wellasinthelastfourweeks.therearemoreupwardrevisionsinthelastweekthaninthelast fourweeks,mostlikelyduetocapitalonereleasingtheirthirdquarterearningswhichwere higherthanexpected.alsotherevisionsforearningsaremorenotablethanforrevenues. 15

16 YouwillneedtoincorporatewhatyouseeherewithMorningstar sanalystresearchreport(you canaccessmorningstardirectatthefinancialmarketslab.)andotherreadings/analysisyou foundfromvariouson linefinancialsites.discusswhetheryouthinkthecompanyhasagood chanceofmakingorbeatinganalystconsensusestimate,andwhy.basedonhowthestockhas beentradinglately,doyouthinkmarkethasalreadyanticipatedstrongorlacklusterfinancial outlookfromthecompany? IthinkthatCapitalOneFinancialCorporationdoeshaveagoodchanceofbeatinganalyst s estimates.theyhavequicklybecomeoneofthenationslargestlendersandthisyearhave acquiredbothingdirectandhsbc sdomesticcardbusiness.ithinkthattheyareinagood financialposition,theirtotaldebttoequityratioismuchlessthantheindustryandthesector. Theacquisitionsbothstartedshowingtheywereworthitinthethirdquarterandshould continueinthisupwardtrajectory.theyhavestrongleadershipunderrichardfairbank,whois willingtopursueanaggressivegrowthstrategy.theybeatanalyst sestimatesinthethird quarterandshowedincreasednumbersinnetincomeandearningspershareandareprepared todothisagaininthefourthquarter.thelargestconcernisthatthelendingindustryis sufferingasawholeundertheprolongedinterestrateenvironmentintheunitedstates.the stockhasbeenincreasingfairlysteadilyforthelast3months,andithinkthemarketis anticipatinggrowthbutthatithasnottoppedoutyet.thecurrentpriceisapproachingthe52 weekhigh,whichisalwaysworrisometoseeifitcanclimbthroughthatceiling. 16

17 Section(F) Analysts Recommendations ANALYST RECOMMENDATIONS AND REVISIONS 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating Reviewthetrendofanalystrecommendationsoverthelastthreemonths.Isthereanotable changeofanalystopinions,turningmorebullishorbearish?howmanydifferentratingsout ofthefivepossibleonesdidthecompanyreceivecurrently,one,two,andthreemonthsago? Isthereanotabletrendofopinionconvergenceordivergence?Iswhatyouseehere consistenttocommentsinmorningstaranalyst sresearchreportaswellasvariousonline financialsitesyouhadresearchedon? Overthepastthreemonthsanalystshavebeenconsistentintheiropinions,withtheonly changebeingonemoreanalystsrecommendsbuy,andoutperforminthecurrentsection. CapitalOnehasonlyreceivedbuy,outperform,orholdratingsfromtheanalysts.CapitalOne hasameanratingof1.86whichisabullishrating.thisisconsistentwithwhatihaveseenon othersites,includingmorningstarwhichgivesaratingof4.1outof5(inthiscasethatisa bullishrating).almostallthefinancialsiteshavecapitalonereceivingthelargestnumberof buyandoutperform,withsomesuggestinghold. 17

18 NOTE:OnaFive pointscale,reutersassigns 1 to Buy,themostbullishrecommendation, and 5 to Sell,themostbearishrecommendation.Someotheronlinesiteshaveopposite scale,withtheir 1 beingthemostbearishand 5 beingthemostbullishrecommendations. 18

19 Section(G) B6&=(&,73$%63=7,=%7,(=0&,/)*(,/&G+6=/&,/3,13>',3$%,(/3'=:&,7&0*.& You only need to input values to cells highlighted in "yellow" The rest of the spreadsheet is calculated automatically Please read "Stock Recommendation Guidelines" document carefully!"# "$%&'()*+,-./*0*/1 2,34,5367&'( 8,9&:;,5367&'( <)='&( 8,<)='&( <)='&(,">/(/=%7*%:!"#$%%%$&'( #%%)%%* &'# #%%)(+*!#"$&&!$(## "'),'* 2,A&$,B3(*/*3%( #% #),&* 2,!63(&7,B3(*/*3%(! %)(+* 2,C%.'&=(&7,B3(*/*3%(!" &)-"* 2,D&.'&=(&7,B3(*/*3%( (% &)(-* &"( #%%)%%*!#'$+'#$+!- "')+#* 2,A&/,9>1&'(?E,F3;,A&/,!):., +')#!*.&#!$"+,.%)#,* "$%&'()*+,C%43'G=/*3% +,)+%* F>/>=6,#>%7,8,"$%&'()*+ #),+* #63=/,8 '")"(* J,K8,"$%&'()*+ 5367&',A=G& 8,">/(/=%7*%: L&+3'/,D=/& ING Investment Managment (Natherlands) 9.3 6/30/12 Dodge and Cox 9 6/30/12 / :0;<4=>61!),%* %(?-%?#, 19

20 Combineinformationprovidedinallthreesectionstodiscusswhether(1)institutions,onnet basis,havebeenincreasingordecreasingownershipandhowsignificant,(2)thestockhas sizableinstitutioninterestsandsupport,(3)theextentofthe(>5%)owners,and(4)this couldbeabullishorbearishindicationoffuturestockpricemovement. Onanetbasisinstitutionshavedecreasedownershipataveryinsignificantamountof.12%. Thestockdoeshaveinstitutionalsupportonafairlysignificantbasiswith89.12%ofshares beingownedbyinstitutionalinvestors.thereare3institutionsthathaveagreaterthan5% interestinthecompany.itisabullishsignalthatsomanyinstitutionsownthestock,butslightly bearishthattherehasbeenaslightdecrease(by.12%)intheamountofinstitutional ownership. 20

21 Section(H) ShortInterest(twopages) NOTE:Youareencouragedtolookattheshortinterestinformationfortwoofthecompanies closestcompetitors.thiswillhelpgaugewhetherthesentimentindicatedintheshortinterest statisticsiscompanyspecificorindustry wide. Settlement Date Short Interest Average Daily Shares Volume # of Days to cover 10/15/2012 7,010,635 3,595, /28/2012 6,377,445 4,603, /14/2012 6,064,622 9,341, /31/2012 8,626,341 2,920, /15/2012 9,711,745 3,233, /31/ ,606,837 4,133, /13/ ,231,910 2,136, /29/ ,249,104 4,050, /15/ ,002,795 5,543, /31/2012 9,041,201 4,453, /15/2012 7,574,442 4,495, /30/2012 7,659,062 4,557, /13/2012 7,883,955 4,588, /30/ ,239,684 6,364, /15/2012 9,894,481 6,228, /29/2012 7,617,515 7,841, /15/ ,095,825 5,845, /31/ ,421,420 7,161, /13/ ,239,543 5,685, /30/ ,094,592 4,743, /15/ ,440,590 5,197, /30/ ,391,242 5,310, /15/ ,719,700 5,031, /31/ ,469,152 7,145, /14/ ,692,251 5,609,

22 Fromhttp://finance.yahoo.com/ Completethefollowingtablewithinformationfromthe sharestatistics table. Avg Vol Avg Vol Shares (3 month) (10 day) Outstanding Float 4.537,680 5,435, Million Million Shares Short Short Ratio Short % of Float Shares Short (Most recent date) (Most recent date) (Most recent date) (2 weeks prior) 7.01Million % 6.38Million 22

23 Basedontheshortintereststatisticsanditsrecenttrend,howisthemarketsentimentonthe stock?hasthesentimentturnedmorebullishorbearishoverthelastyear?howaboutin morerecentmonthandwhy? Themostnotablethingconcerningshortinterestoverthelastyear,ishowlargethedeclinein shortinteresthasbeenoverall,from30,692,251to7,010,350.thisshowsthatsentimenthas turnedbullishoverthelastyear.howeveritdidincreasefrom9/28/2012to10/15/2012.i wouldbeinterestedtoseewhatitisnextweekwhenitisreported,sinceqe3wasreleasedon October18 th.withashortinterestratioof1.7,thisindicatesbullishtendenciesinthemarket forcapitalone.alsotheshort%offloatisonly2%.thisindicatesthatonly2%ofallshares beingtradedarebeingshorted,whichindicatesthemarketdoesnotlargelypredictthisstock todecreaseinpriceandisabullishsignal. 23

24 Section(I) StockCharts Key COF=Darkblueandshaded S&P500=Purple Financials=Red AXP=Green V=Lightblue Athreemonthspricechart 24

25 Aoneyearpricechart Afiveyearpricechart 25

26 Discusswhatyouobservefromthestockcharts.Thisshouldincludecomparingyourstockto competitors,sector,andsp500overthethreedifferenttimehorizons. Thestockchartsaresomewhatdisconcerting.Onthefive yearpricechartweseethatcapital OnegenerallystayswithAmericanExpressandtheMarketbutislargelyoutperformedbythe financialsectoraswellasvisa.thethree yearpricechartismorepromisingwithcapitalone outperformingthes&p500,thexlf,andamericanexpress.thethree monthpricechartshows thatcapitaloneiscloselyfollowingvisaandamericanexpress,butbeingoutperformedbythe S&P500andtheXLF.HoweverweseethatinthelastfewdaysCapitalOnehasbeen outperformingallthebutthexlf. 26

27 References CapitalOneCompanyProfile.AccessedOctober ename=about+capital+one&portletlocation=4%3b4 8 4 col%3b1 1 1&ComponentName=secondary_nav&ContentElement=3%3BCorporate+Information&TargetLo b=mts%3a%3alctmjbe8z&targetpagename=corporate+information&referer= e.com CapitalOneAnnual10kReport2011.AccessedOctober242012http://phx.corporateir.net/phoenix.zhtml?c=70667&p=irol irhome CapitalOnePressReleaseOctober AccessedOctober242012http://phx.corporateir.net/phoenix.zhtml?c=70667&p=irol news Yahoo!Finance.CapitalOneStocks.AccessedOctober MSNMoney.Investments.AccessedOctober percent ownership?symbol=cof MorningstarDirect.CapitalOneFinancialCorporation.AccessedOctober Nasdaq.ShortInterest.AccessedOctober Reuters.com.CapitalOneFinancialCorporation.AccessedOctober Reuters.com.Visa.AccessedOctober Reuters.com.MasterCard.AccessedOctober Reuters.com.AmericanExpress.AccessedOctober

28 Reuters.com.DiscoverFinancialServices.AccessedOctober