D.A. Davidson Upgrades Capital One To Buy, Maintains Price Target

D.A. Davidson’s Arren Cyganovich believes Capital One Financial Corp. COF's credit quality continues to be stable, while loan growth has persisted for longer than expected and the stock valuation is attractive.

Cyganovich upgraded the rating on the company from Neutral to Buy, with a price target of $76.

Credit Concerns Overdone

Stating that credit concerns have been overdone, the analyst mentioned there was “no evidence of material deterioration in credit conditions” during what appeared to be an extended positive credit cycle for credit cards.

However, the main driver of card losses, the analyst pointed out, has been unemployment, “which continues to be very benign as highlighted by weekly jobless claims.”

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In addition, delinquency data from credit card Master Trust suggest normal seasonal improvements are likely going forward, indicating no meaningful change in overall industry credit.

According to the D.A. Davidson report, “Credit losses likely will rise modestly primarily driven by credit seasoning of recently higher growth origination vintages.”

Sustained Loan Growth

Cyganovich noted that Capital One has been able to sustain card loan growth at above industry levels, with May Domestic Card growth coming in at 12.9 percent year-on-year.

However, the analyst expects card loan growth to slow to 8 percent in 2017, although this estimate could prove overly conservative.

Auto loan growth for May has also been above the estimates, at 10.2 percent.