Summary
COF is seeing its share price breakout higher.
Its operations are improving due to a stronger economic backdrop.
I am buying stock in this name.
This idea was discussed in more depth with members of my private investing community, Absolute Returns.
Capital One Financial (COF) is breaking out higher on strengthening fundamentals. Rising interest rates and a strong consumer credit environment are leading to both top- and bottom-line growth. Its share price is similarly breaking out higher following months of consolidation. I am buying stock in this name as its operational improvements should lead to investor optimism.
Fundamental Narrative
COF is attractively valued at current levels due to improving consumer credit quality and rising interest rates leading to both top- and bottom-line growth.
COF reported Q2 adjusted EPS of $3.22 compared to $2.62 EPS in Q1 and $1.94 in the year-ago period. The quarter included a $400M net gain on the sale of a substantial majority of its consumer home loan portfolio. Strong performance was largely driven by credit improvement across its businesses, with the growth math now helping overall domestic credit card trends, according to management. Improving delinquencies and lower charge offs resulted in a $72 million allowance release in its Domestic Card business and a $77 million release in its Auto business, according to the earnings call. COF increased its commercial reserves by $41 million over the quarter as they increased its allowance coverage ratio.
