Capital One Financial Corporation (COF)

Conclusion

Capital One Financial Corporation is a US financial holding company whose bank runs credit card, consumer banking and commercial banking businesses, with operations in the United States, Canada and the United Kingdom. At a price of 198.58 USD on 2026-11-09, its market capitalisation is 121.8 billion USD.

The verdict is undervalued. The P/E of 11.21 is 3.9% below its ten-year median of 11.66, and EV/EBITDA of 1.54 is 54.5% below its median of 3.38. The DCF gives 937.02 USD per share at a discount rate of 10.31%, and the fair value band runs from 453.42 to 680.13 USD with a midpoint of 566.78 USD, a margin of safety of 185.4%. The fair value from historical multiples is 196.54 USD. The reverse DCF implies growth of -13.95% a year, against revenue growth of 16.96% a year over five years and free cash flow per share growth of 6.75% a year over the same period.

What holds the case up is a trailing ROIC of 73.66% against a WACC of 10.21%, free cash flow of 273.86% of earnings on a five-year basis, and net cash equal to -4.15 times EBITDA. What would break it is a negative Altman Z-score of -0.12, an interest coverage of 1.02, and earnings per share that fell at a compound 5.19% a year over five years and 37.67% over three.

Financial health

The colour is grey, because this is a financial business where debt is part of the trade. Net debt to EBITDA of -4.15 points to net cash, and debt to equity of 0.45 is moderate. However, the current ratio of 0.30, the quick ratio of 0.29 and the interest coverage of 1.02 are all assessed as risks. The Altman Z-score is -0.12, in the distress zone. The Altman model was designed for manufacturers, and this company is not one, so the reading is weak evidence. Insolvency risk: not applicable, because the Ohlson model does not apply to a financial business.

Earnings quality

The colour is yellow: cash conversion and a favourable Beneish reading hold it up, while the rising share count and a Piotroski score of 4 out of 9 pull it down. Free cash flow was 264.58% of earnings on a trailing basis and 273.86% over five years, and the accrual ratio is -0.0436. Stock-based compensation is 0.91% of revenue, and free cash flow after it is 28.03 billion USD. The share count grew at a compound 3.36% a year over five years, so buybacks have not reduced it. The Beneish M-score of -2.29 is read as unlikely to signal manipulation. The company beat estimates in 6 of the last 8 quarters, with an average surprise of 17.23%. Current-year estimates rose 6.41% over 90 days, while next-year estimates fell 0.87%.

Profitability

The colour is green, with all four checks assessed good. The operating margin is 21.12% against a ten-year median of 19.12%, and the net margin is 13.73% against 11.75%. The gross margin is 66.60% against 65.92%. ROIC of 73.66% against a WACC of 10.21%, a ROIC minus WACC of 63.45%, is the strongest signal. Its five-year median, however, is only 5.58%. Return on equity is 9.91%. The DuPont split, dated 2025-12-31, shows a net margin of 3.54%, an asset turnover of 0.1035 and an equity multiplier of 5.89, so leverage is a large part of the equity return.

Growth

The colour is yellow: revenue growth is assessed good, while earnings per share growth is assessed bad. Revenue compounded at 21.75% over three years, 16.96% over five and 10.71% over ten, and it grew in 9 of the 10 comparable years. Earnings per share compounded at -37.67% over three years, -5.19% over five and -4.77% over ten. Free cash flow per share grew at 13.83% over three years, 6.75% over five and 10.68% over ten. The next-year earnings growth estimate is 10.36%. The gap between strong revenue growth and falling earnings per share is the central question for this company.

Valuation

The colour is green, and the verdict is undervalued. The P/E of 11.21 is 3.9% below its ten-year median of 11.66. Price to free cash flow of 4.24 is 20.4% above its median of 3.52, and price to book of 1.11 is 17.9% above its median of 0.94. The DCF gives 937.02 USD per share at a discount rate of 10.31%, with the terminal value at 52.7% of that value. The fair value band runs from 453.42 to 680.13 USD, with a midpoint of 566.78 USD and a margin of safety of 185.4% at the current price. The fair value from historical multiples is 196.54 USD. The reverse DCF implies growth of -13.95%, against 16.96% revenue growth over five years. The dividend yield is 2.35%, with a payout of 9.97% of free cash flow and a forward yield of 1.52%. The fair value rests on fixed assumptions (a 5% equity risk premium and capped growth), so it is an order of magnitude, not a price target.

Risks

The weakest numbers would hit the company in specific ways. A negative Altman Z-score and an interest coverage of 1.02 leave little room between earnings and financing costs. A current ratio of 0.30 cannot be interpreted properly without the funding structure. If earnings per share keep falling at the three-year pace of -37.67%, the growth assumed in the valuation would be hard to sustain. A rising share count of 3.36% a year erodes value per share. The DCF of 937.02 USD sits far above the fair value from historical multiples of 196.54 USD, so the valuation depends heavily on its assumptions. This analysis has no debt maturity schedule and no revenue by segment, so funding and loan loss exposure cannot be checked.