Market Overview

JPMorgan Upgrades Capital One To Overweight

Share:
Related COF
Amazon's Cloud Service Picks Up 2 High-Profile Clients In As Many Days
Wedbush Adjusts Targets On Credit Card Lenders, Pawn, Installment Names
Capital One: A Bold Bet On The Recovery (Seeking Alpha)

Due to lower credit expenses over the past few years, Capital One Financial Corp. (NYSE: COF) has increased rewards, driving an increase in transactions volumes, as well as sustainable gains in market share.

JPMorgan’s Richard Shane upgraded the rating on the company to Overweight, while raising the price target from $73 to $83.

‘Lender-Centric’ Trends

Shane mentioned that “low credit losses have created an environment that favors the ‘lend-centric’ card issuers,” and a review of industry trends revealed that Capital One had been the biggest beneficiary, with increased rewards leading to “increased transaction volume, market share gains and industry-leading asset growth.”

Related Link: A Sector ETF For Share Buybacks

Consistently low credit losses in the recent past “distorted” the behavior of card issuers with improvement in the risk adjusted lending margins. Shane believes that this environment favors cards issuers that are “lender-centric,” or specifically skewed to the middle income consumer.

These card issuers have been able have to “harvest the increased returns on lending to fund more competitive rewards programs, effectively “giving away transactions” to drive portfolio growth,” according to the JPMorgan report.

Average ‘Credit Beta’

Shane also pointed out that data suggests that Capital One has lower credit sensitivity than the basic metrics imply, driven by the company’s best-in-class underwriting, which has led to about average “credit beta” for the company, despite a higher concentration of borrowers with lower than 600 FICO scores.

Latest Ratings for COF

DateFirmActionFromTo
Nov 2016BairdDowngradesOutperformNeutral
Nov 2016Stifel NicolausDowngradesBuyHold
Oct 2016WedbushInitiates Coverage OnNeutral

View More Analyst Ratings for COF
View the Latest Analyst Ratings

Posted-In: JPMorgan Richard ShaneAnalyst Color Long Ideas Upgrades Price Target Analyst Ratings Trading Ideas

 

Related Articles (COF)

View Comments and Join the Discussion!