The finance and banking sector was hard hit last year due to the COVID-19 pandemic. The sector has rebounded strongly this year, with the economic recovery driving a rise in banking transactions and higher-than-usual capital market activities. The sector has grown to account for one-third of Fortune’s latest 100 Fastest-Growing Companies List, outpacing the technology sector.
The Fed’s signal that it will raise benchmark interest rates as soon as 2022 should further drive the financial sector’s growth. With the consumer price index rising 4% year-over-year, the odds of an interest rate hike are good.
Investors’ interest in the finance sector is evidenced by the Financial Select Sector SPDR Fund ETF’s (XLF) 37.1% year-to-date gains, versus the broader SPDR S&P 500 ETF Trust’s (SPY) 22.6% returns. Hence, we think it could be wise to bet on financial stocks possessing solid fundamentals—Capital One Financial Corporation (COF), Flagstar Bancorp, Inc. (FBC), and Capital Bancorp, Inc. (CBNK).
Capital One Financial Corporation (COF)
McLean, Va.-based COF operates as a financial service holding company for the Capital One Bank (USA), National Association, and Capital One, National Association, offering various products and services. The company functions through the Credit Card; Consumer Banking, and Commercial Banking segments.
On October 18, COF announced that it would redeem all its Series G and Series H, non-cumulative perpetual preferred stock at par. The company might also declare a dividend on the outstanding Series G and Series H preferred stock, payable on December 1.
In August, the company launched student versions of two of its flagship credit cards to provide customers with valuable rewards and amplify customer choices. Daniel Mouadeb, Executive Vice President, Head of Mainstreet Card at COF, said, “By bringing more choices to our customers, including access to credit and the benefit of rewards, we’re paving the way for a more inclusive and rewarding credit experience.”
For its third fiscal quarter, ended September 30, COF’s total net revenue increased 6.1% year-over-year to $7.83 billion. This can be attributed to a 10.8% rise in net interest income from the prior-year quarter to $6.16 billion. Its net income and net income per share came in at $3.10 billion and $6.78, respectively, up 29% and 34% year-over-year.
A $25.89 consensus EPS estimate for the current year (fiscal 2021) indicates a 399.8% year-over-year improvement. Similarly, the $30 billion consensus revenue estimate for the current year reflects a 5.2% rise from the prior year. Furthermore, COF has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 111.6% in price over the past year and 54.3% year-to-date to close yesterday’s trading session at $152.50.
COF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
COF has an A Sentiment grade, and a Momentum grade of B. In the 52-stock Consumer Financial Services industry, it is ranked #12. Click here to see the additional POWR Ratings for COF (Growth, Value, Stability, and Quality).
Flagstar Bancorp, Inc. (FBC)
FBC provides commercial and consumer banking services, functioning as a holding company for Flagstar Bank, FSB. The Troy, Mich., company operates under the Community Banking; Mortgage Originations; and Mortgage Servicing segments.
On October 21, FBC declared a $0.06 quarterly dividend per share, payable on November 16. This move reflects the company’s confidence in its ability to support shareholders.
FBC’s net interest income has increased 8.3% year-over-year to $195 million in its third fiscal quarter, ended September 30. Its adjusted net income improved 6.8% sequentially to $156 million, while its adjusted income per share rose 7.7% from the prior quarter to $2.94.
Analysts expect its revenue to increase 6% year-over-year to $725.85 million in the current year (fiscal 2021). In addition, FBC has beaten consensus EPS estimates in each of the trailing four quarters.
FBC’s stock has gained 64.5% in price over the past year to close yesterday’s trading session at $49.17. It has gained 20.6% year-to-date.
It is no surprise that FBC has an overall B rating which translates to Buy in our POWR Rating system. The stock also has a B grade for Value and Quality. FBC is ranked #4 out of the 33 stocks in the Mid-Atlantic Regional Banks industry.
To see the additional POWR Rating for Growth, Momentum, Stability, and Sentiment for FBC, click here.
Capital Bancorp, Inc. (CBNK)
CBNK operates as the bank holding company for Capital Bank, N.A., providing various banking products and services to businesses, non-profit associations, and entrepreneurs. It operates through the Commercial Banking; Capital Bank Home Loans; and OpenSky segments. CBNK is headquartered in Rockville, Md.
On October 4, CNBK was named the Piper Sandler Bank & Thrift Sm-All Stars for the third consecutive year. Regarding this recognition, Edward Barry, Chief Executive Officer at Capital Bank, said, “The recognition is testament to our collective commitment to execute against our business strategy as we marry together the personalized element of human interaction with technology, enabling Capital Bank to meet the changing needs of our customers.” In June, Capital Bank, N.A. won the Nintex Solution Innovation Award for transforming its SBA application process and launching its Paycheck Protection Program (PPP).
For its third fiscal quarter, ended September 30, CBNK’s net interest income increased 45.5% year-over-year to $32.06 million. Its net income and EPS stood at $11.18 million and $0.79, respectively, registering a 32.5% and 29.5% gain from the prior-year quarter. Its return on average assets came in at 2.13%, versus 1.89% in the same period last year.
The Street’s $2.56 EPS estimate for the current year (fiscal 2021) reflects an improvement of 36.9% from the prior year. Likewise, the Street’s $161.57 million revenue estimate for the current year indicates an 11.3% year-over-year rise. In addition, CBNK has topped the Street’s EPS estimates in each of the trailing four quarters.
The stock has gained 164.8% in price over the past year and 86.1% year-to-date to close yesterday’s trading session at $25.92.
Under POWR Ratings, CBNK has been accorded an A rating for Sentiment. It is ranked #11 in the Mid-Atlantic Regional Banks industry. Click here to see the additional POWR Ratings for Growth, Value, Momentum, Stability, and Quality for CBNK.
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COF shares fell $152.50 (-100.00%) in premarket trading Friday. Year-to-date, COF has gained 56.64%, versus a 23.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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