Stockchase Opinions

Jim McGovern Capital One Financial Corp COF-N TOP PICK Jun 05, 2017

*Short*. The Company derives a good chunk of its revenue through its credit card business of about 40%, and its auto financing business, another 20%. Of that business, approximately one 3rd is subprime. One weak link in the US market is the subprime market where delinquencies and some of the charges are going to increase. Dividend yield of 2.1%. Thinks the stock can trade down to $59. (Analysts’ price target is $98.)

$78.330

Stock price when the opinion was issued

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BUY
Their just-released quarter shot the lights out, with great loan growth and defaults well below pre-Covid levels. Shares surged over $9 today. The street expected their credit card business would be plagued by defaults, but those folks were wrong.
DON'T BUY

The company itself is fine, but the capital/lending cycle concerns him, where bankruptcies will increase and decrease earnings, buybacks and dividends.

BUY

His favourite in this industry, given the Discover-Capital One merger because he doesn't expect usery fees.

BUY

The merger with Discover creates the largest credit card company in the US. COF's balance sheet is strong.

BUY

With regulation ahead, it's now more likely that their deal with Discover Financial will finally close--it's been taking forever. If so, COF could go up 25 points. No matter what, COF will be fine.

BUY

The merger with Discover is complete. It's his favourite holding. Despite gaining 20 points in May, he sees more upside and analyst upgrades.

BUY

Tuesday they deliver commentary which he expects to be positive about their synergistic deal with Discover. Maybe that's why shares were up today.

BUY

Banks are a winning sector and his favourite here is COF. It just closed a deal with Discovery Financial, which will turn COF's credit card business into a bigger business.

BUY

The stock has run up recently after buying Discover, a major payment network that issues its own cards, but also processes payments. Visa and Mastercard don't do both. COF can scale up to a global payments platform. There's a prediction of a $7-10 billion share buyback after an internal review. Sells at a cheap 11x 2026 PE vs. AmEx's 20x PE. This has a lot more room to run.

COMMENT

Discover deal is closed, and net interest income is 32%. Hitting a new high today.