Capital One Financial Corp. (COF) is expected to overhaul its cost structure and improve its margins over the next few years, gaining more than 20% of its stock price back to return to its previous levels in the mid-70s, says Karen Firestone, President, CEO and Co-Founder of Aureus Asset Management.
“As we’ve studied the stock, the company has begun to address its cost structure, which is very high in certain areas, and we believe that its efficiency ratios and margins will improve over the next couple of years, and COF can again earn over $7 per share and trade for a 10 or 11 multiple, resulting in a mid-70s stock price,” Firestone said.
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Firestone says COF is can be turned around. Although the current stock price is justified due to recent mistakes by the company, she expects the stock to turn around and includes it in her portfolio.
“Capital One Financial is a turnaround situation, selling at $56, with earnings for this year forecast at about $6.35, so it sells for under nine times earnings. The discount is probably justified by investors because of the missteps the company has made over the past year, including two acquisitions, ING Bank and the HSBC (HBC) loan portfolio, that have not worked out as expected,” Firestone said.