FleetCor Technologies, Inc. (FLT), Discover Financial Services (DFS), Capital One Financial Corp. (COF) – Cash or Credit? Why Not Both? Part II

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Capital One: A wide range of services

Capital One Financial Corp. (NYSE:COF) also holds a wider product portfolio than traditional credit card companies. Although offering various products, including consumer and commercial banking services, its core, original business segment continues to rest on credit cards–accounting for 61% of the total revenue in 2012. Over the years, the company has expanded its credit card business through various acquisitions, including HSBC´s $30 billion U.S. credit card segment, and partnerships to issue cards together with industry-leading companies like Delta Airlines and Kohl´s. This strategy has helped Capital One Financial Corp. (NYSE:COF) gain a place amongst the five leading card issuers worldwide.

After the HSBC purchase, the firm started shifting towards higher-end card partnerships, divesting and selling out $7 billion of Best Buy credit card loans and keeping its deals with Neiman Marcus and Saks Fifth Avenue stores, looking to widen its margins and acquire better-performing debt.

Having proven successful in the past, keeping loan losses below the industry average by carefully choosing its customer targets (Morningstar), the growth years of Credit One´s credit cards segment seems close to the end. Going forward, growth will most likely be driven by its banking segments. The company seems to acknowledge the importance of diversification, having purchased several large banks over the last 8 years (including the Chevy Chase Bank and ING Direct USA, amongst various others), retrieving positive results. Through these risky acquisitions, the firm has accomplished a strong presence in  both traditional and online banking, and currently holds about 75 million client accounts.

Trading at 10.7 times its earnings, about half the industry average, while expecting an average annual EPS growth rate of around 10% (Zacks Estimate) and having offered above-average growth rates over the past few years, I’d recommend buying this stock. Moreover, a strong cash position will enhance shareholders’ value through share repurchase programs and a projected dividend yield of 1.96%, which reflects the first upsurge (by 500%) since the financial crisis.

Bottom Line

Above you will find a succinct analysis of three credit card companies that are a little less well-known than Visa, Mastercard or American Express, but still offer plenty of growth opportunities and are, usually, more conveniently valued. Offering compelling expansion prospects and entry points for investors, I’d recommend adding Capital One Financial Corp. (NYSE:COF) and Discover Financial Services (NYSE:DFS) to your portfolio. These companies will not only deliver considerable upside, but also pay out juicy dividends during the process.

FleetCor Technologies, Inc. (NYSE:FLT)’s case is a little different. A few weeks ago, I had recommended buying these shares; however, at its current price, the stock seems a little overvalued for the upside it appears to offer. Don’t lose track of it, though; a decline in its stock price would quickly make of FleetCor Technologies, Inc. (NYSE:FLT) a buy again.

The article Cash or Credit? Why Not Both? Part II originally appeared on Fool.com and is written by Victor Selva.

Victor Selva has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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