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JPMorgan Upgrades Capital One To Overweight

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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.”

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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
May 2017Deutsche BankUpgradesHoldBuy
Mar 2017NomuraUpgradesNeutralBuy
Feb 2017Goldman SachsUpgradesNeutralBuy

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

 

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