(Recasts; adds analysts’ comments)
Sept 24 (Reuters) - Friedman Billings Ramsey and Jefferies & Co raised their price target on credit card and banking company Capital One Financial Corp (COF.N) on Wednesday, a day after it set plans to sell 14 million common shares.
Friedman analyst Scott Valentin raised his price target on the stock to $35, but maintained an “underperform” rating.
“This reflects our belief that Capital One is a survivor, but faces a deteriorating credit environment, as indicated by the increasing unemployment rate, which has negative earnings implications,” Valentin said.
Fox-Pitt Kelton’s Howard Shapiro said, “While the increase in the share count will be dilutive to earnings per share and exert downward pressure on return on equity, the offering puts the company in an ‘offensive’ position.”
Shapiro maintained his “underweight” rating and $34 price target on the stock.
Jefferies analyst Richard Shane raised his price target on the stock to $47 from $40, and said that while the capital raise could be a strategic long-term positive, he sees additional headwinds for Capital One’s earnings over the foreseeable future.
All three analysts expect the company to use the additional capital for acquisitions.
“Specifically, we expect Capital One Financial to target attractively priced depository institutions, or branch networks to grow the company’s deposit base,” Jefferies’ Shane said.
The following table lists the changes to 2008 earnings-per-share estimates for Capital One by the brokerages.
BROKERAGE NAME 2008 ESTIMATE
Citigroup $4.70 $4.85
FBR $4.51 $4.32
Fox-Pitt $4.59 $4.65
Jefferies $4.11 $4.40 (Reporting by Vidya L Nathan in Bangalore; Editing by Pratish Narayanan)