This is more an excuse to see if there is anyone following this thread anymore and to share some data, but I'd be curious to get any reactions.
After holding MBNA (KRB) all this time, I decided to update my comparison analysis to Capital One (COF). Last summer COF fell hard because of concerns about the economy and consumer debt, and it's had a nice run since. But it still looks attractive to me.
You may recall that I studied KRB and compared it to COF for my club, concluding that KRB was a more attractive stock and company at the time. Perhaps this is also an acknowledgment that things change and one's original thesis needs to be kept current.
A SCG shows COF to be a stronger grower and better valued stock at this time. Both come out a buy but COF has a better up/down and higher annual return (29% vs. 16%, even with KRB's higher dividend). KRB's SSG shows an earnings line straight and beautiful for many years, then rolling over. Not so with COF.
Speaking of dividend, COF has a lower payout ratio and the new tax laws could encourage COF to pay a higher dividend, perhaps?
Value Line gives COF a "1" but KRB only a "3." Similarly, S&P rates COF higher (5 vs. 4 stars).
COF appears to be a faster growing company with lower valuations, albeit with a higher beta and much more debt.
I read that COF is moving up the food chain to higher quality customers, away from the subprime, which is one of the things that attracted me to KRB in the first place.
My conclusion is that I am holding the wrong credit card company. But I am not sure if I want to hold any at all right now, with the joblessness and soft economy. Thoughts?
My Graham FV calculation clearly favors COF:
Company: MBNA COF
Date: 7/23/03
Current Price: $21.57 $47.88
2003's expected earnings: $1.66 $4.64
Estimated 5 yr. EPS growth rate: 12 14
P/E maximum if not 8.5: 12 14
Graham Fair Value: $42.07 $137.20
Current Price: $21.57 $47.88
$ difference: $20.50 $89.32
Percent Growth to Fair Value: 95.04% 186.54%
finance.yahoo.com
July 18 Capital One added to JP Morgan's Focus List (COF) 48.22: JP Morgan adds Overweight-rated COF to their Focus List based on valuation as well as their belief that the co is poised to re-emerge from the qualitative quagmire that has plagued results through mid-02; credit quality, reserve levels, marketing spending, and loan growth are all expected to improve in 2H03. Target is $63. |
