1. Jiaze Li Ningzhou Fang
October 18, 2016

2. Agenda Section I Business Summary Company Overview Company History
Company Strategy
Business Structure
Section II Fundamental Analysis
Key Economic Drive
Industrial Review
Porter’s Five Force
Financial Ratios
Section III Technical Analysis
Section IV Valuation
Assumption
Residual Income Model
Comparable Valuation
Section V Financial Risk
Section VI Recommendation

3. Company Overview
One of the ten largest US banks by deposits & largest online bank in US by deposits
Basic Information
Key Executives
Founded in 1994
Headquarter in McLean, Virginia
Three Business Segments: Credit Card, Consumer Bank and Commercial Bank
Richard D. Fairbank: Chairman, President & CEO, who once served on BOD in MasterCard International.
Stephen Crawford: CFO since May 24, 2013, who spent more than 20 years in various positions in Morgan Stanley.
Holders Breakdown
Trading Summary (10/17/16)
0.52% shares held by all insiders & owners
91.7% shares held by institutional & mutual fund owners
7.78% shares held by individual investors
931 institutional & mutual fund owners
Shares Outstanding: 506.1million
Current Price: $71.78
Trailing P/E Ratio: 10.13
Market Cap: 36.33B
Trailing Dividend & Yield: 1.60 (2.24%)
Real Client Managed Portfolio

4. Company History
From credit cards to a diversified bank by expanding merger and acquisition
Source:

5. Company Strategy
How Capital One Financial Staying ahead in the intense competition
Information-based
Innovation
Digital
The philosophy of “Creating A Digital Bank” focuses on mobile channel has helped the company reduce cost and maintain sector-leading growth despite of global recession.
This platform keeps the company creating innovative digital products including customer receipts, inventory management tools and sales report analysis.
The bank has been using sophisticated data collecting methods to tailor products and service to customer needs. Capital One also introduced a rewards redemption program called “Purchase Eraser”.

6. Business Structure
Capital One has a distinguish business structure compared to other banks
Capital One
Credit Card
Saving Bank
Auto Finance
Primary, Oldest,
Highest Earning
Consumer and Commercial Bank
The Third Largest Auto
Financier in US
Source: COF 10-Q

7. Key Macroeconomic Drive
Macroeconomic environment expects to represent a potential opportunity for the industry
National Unemployment Rate
Prime Rate
Aggregate Household Debt
Corporate Profit
Real Client Managed Portfolio
Source: IBIS World

8. Industry Review
Industry revenue will be less volatile, increasing 1.2% annually over the next five years
Current Performance
Major Players
Industry Structure
Key Statistics
Life Cycle Stage: Mature
Revenue Volatility: Medium
Capital Intensity: Medium
Regulation Level: Heavy
Revenue: 507.2B (2016)
Profit: 105.6B (2016)
Annual Growth: -2.8%( )
Expected Growth: 1.2% ( )
Business: 5,318
Real Client Managed Portfolio
Source: IBIS World

9. Rivalry among Existing Competitor Threat of Substitute Products
Porter’s Five Force
Rivalry among Existing Competitor
Power of Suppliers
Entry to Barriers
Power of Buyers
Threat of Substitute Products
Low
High
High
High
Low

10. Financial Ratios Net Interest Spread ROE Capital Structure
Credit Quality
Real Client Managed Portfolio
Source: Capital One Annual Report ( )

11. Technical Analysis
SMA(50) above SMA(200) signals further gains are in store

12. Assumption

13. Assumption

14. Interest Income Projection

15. BS-Liabilities Projection

16. Loan Projection

17. Residual Income Model
COF implied share price is $83.61

18. Comparable Companies
Comparable companies are in similar business, size, and asset structure with COF
Comparable Companies
Fifth Third Bancorp
Regions Financial
The PNC Financial
Ally Financial
Synchrony
Financial
Discover
Ticker
FITB RF
PNC
ALLY
SYF
DFS
Business
Description
Retail Banking,
Commercial Banking, Data Processing
Mortgage Banking, Credit Life Insurance,
Leasing, Commercial Banking
Regional Banking, Wholesale Banking, Asset Management
Automotive Financial Service
Credit Products and Financial Services
Credit Card Issuer and Electronic Payment Services
Current Price
$19.8
$10.01
$88.21
$19.33
$26.42
$54.47
Market Cap
$15.174
$12,615
$43,259
$9,335
$22,266
$22,217
BVPS
$20.1
$13.2
$86.6
$28.1
$16.4
$26.7
Tier 1 Capital
Ratio
11.0%
11.7%
10.3%
11.2%
18.5%
15.0%
Source: Bloomberg

19. Comparable Valuation
COF implied share price is ranged from $76.11 to $87.64

20. Other Performance Ratios
Financial Risk
Notice the financial risks hidden behind attractive implied share price
Net Interest Spread
ROE
Deposit Growth
Other Performance Ratios
Real Client Managed Portfolio

21. Recommendation Hold We recommend to hold COF in the portfolio
Current Price
Residual Income Model Implied Price
Comparable Valuation Implied Price
Margin of Safety
$71.78
$83.61
$76.11-$87.64
<20%
$71.78
$76.11
$83.61
$87.64
Hold
Decreasing ROE
Sluggish Deposit
Margin of Safety
Rebounding Economy

22. Q&A
Thank You !