DCF Studio

    COF · NYQ · Financial Services

    Capital One Financial Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 297.51

    Market price

    USD 202.43

    Implied upside

    +47.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages 2.84% of revenue against depreciation and amortisation of 9.07%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 9.07% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 297.51+47.0%
    Exit multiple
    USD 636.95+214.7%
    Market price
    USD 202.43

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn8bn16bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 62.0bnUSD 71.9bnUSD 83.4bnUSD 96.7bnUSD 112.1bn+16.0%
    EBITUSD 9.7bnUSD 11.3bnUSD 13.1bnUSD 15.2bnUSD 17.6bn+16.0%
    NOPATUSD 7.8bnUSD 9.1bnUSD 10.5bnUSD 12.2bnUSD 14.2bn+16.0%
    Add depreciation & amortisationUSD 5.6bnUSD 6.5bnUSD 7.6bnUSD 8.8bnUSD 10.2bn+16.0%
    Less capital expenditureUSD -5.6bnUSD -6.5bnUSD -7.6bnUSD -8.8bnUSD -10.2bn+16.0%
    Less increase in working capitalUSD 760.8mUSD 882.4mUSD 1.0bnUSD 1.2bnUSD 1.4bn-16.0%
    Free cashflow to firmUSD 8.6bnUSD 10.0bnUSD 11.6bnUSD 13.4bnUSD 15.6bn+16.0%
    Discount factor0.95720.87710.80370.73640.6747-
    Present valueUSD 8.2bnUSD 8.7bnUSD 9.3bnUSD 9.9bnUSD 10.5bn+6.3%
    Present Value Of The ForecastUSD 46.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.011Reported 1.016, pulled toward 1.0 (Blume)
    Cost of equity10.56%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 33.2% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 124.2bn71.1% of capital
    Total debtUSD 50.4bn28.9% of capital, book value as a proxy
    Tax rate19.4%Effective, capped at statutory
    WACC9.14%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 297.51

    70% of EV

    Forecast FCFF, final year
    USD 15.6bn
    Capex at depreciation, working capital in reinvestment
    USD 14.2bn
    Less reinvestment at g/ROIC (27.4% of NOPAT)
    USD -3.9bn
    Capitalised
    USD 10.3bn
    ROIC (WACC floor)
    9.1%
    Terminal value, undiscounted
    USD 159.1bn
    Terminal value, discounted
    USD 107.4bn
    Enterprise value
    USD 154.0bn
    Less net debt
    USD -7.0bn
    Equity value
    USD 161.0bn

    Exit at 15.5x EBITDA

    Value per shareUSD 636.95

    86% of EV

    Terminal value, undiscounted
    USD 431.4bn
    Terminal value, discounted
    USD 291.1bn
    Enterprise value
    USD 337.8bn
    Less net debt
    USD -7.0bn
    Equity value
    USD 344.8bn

    Spread between methods: 73%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.14%376.75378.10379.45380.79382.14
    8.14%331.15332.29333.42334.55335.68
    9.14%295.58296.54297.51298.48299.45
    10.14%267.05267.89268.73269.56270.40
    11.14%243.68244.41245.14245.87246.61

    Outlined: this model. Green text: above today's price of 202.43. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year16.0%6.1%-9.9pp
    EBIT margin15.7%10.3%-5.4pp
    Discount rate9.1%13.6%+4.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.