Piper Sandler downgrades Capital One Financial to 'neutral'

Downgrade

Piper Sandler analyst Kevin Barker downgraded Capital One Financial Corp. to "neutral" from "overweight" and decreased the price target to $143 from $164.

Barker said the downgrade should have been made when the McLean, Va.-based company "abandoned" its operating efficiency ratio target of 42% last quarter. "This quarter, it has become apparent [Capital One] will have difficulty growing earnings over the next couple of years as operating expense inflation and rising credit costs weigh on earnings," the analyst wrote.

Moreover, Barker mentioned seeing headwinds that will result in credit costs increasing for the next few years as Capital One hikes spending on technology and marketing. Those headwinds will limit earnings potential and possibly cause the company's shares "to remain rangebound until credit stabilizes or expense inflation abates," according to the analyst.

Barker lowered the 2022 EPS estimate to $21.28 from $22.29 and 2023 estimate to $16.50 from $18.13, mainly because of higher operating expenses and a higher provision expense.