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JPMorgan added Capital One Financial (NYSE:COF) to its Analyst Focus List on Monday, calling it a “top value opportunity,” as the bank’s earnings are expected to hit a cyclical trough next year.
“Buying stocks at near trough multiples on trough earnings is part of our ‘lather, rinse, repeat” stock picking strategy,” JPMorgan analyst Richard Shane wrote in a note.
COF stock is changing hands at 6.0x next-twelve-months EPS, the note read, representing a 38% discount to the historical average. That discount is “pricing in credit risk that is worse than most likely scenarios.”
Against a backdrop of credit normalization and a softer economy, Shane is assuming that Capital One’s (COF) net charge-off rate will continue to increase (from exceptionally low levels) in 2023. In the company’s worse than expected Q3, its NCO rate was 1.24%, normalizing from 1.18% in Q2 and 0.67% in the year-ago quarter.
Overall, though, “we see any weakness in the wake of 4Q22 results as a potential entry points for investors seeing to build concentrated positions,” Shane contended.
COF edged up 0.9% in premarket trading, but dropped 36.4% year-to-date.
Seeking Alpha contributor Dalton Hicks cited COF as a ‘deep value stock” that offers “tremendous long-term value to prospective investors.”
