While some consumers may be shying away from credit, others are continuing to see the benefits, and that’s keeping revenue and profits high for large payment processing companies like Capital One Financial Corp. (NYSE:COF). This entity, that operates as a bank holding company for the Capital One Bank, is focused on three primary segments — credit cards, consumer banking, and commercial banking — and is the sixth largest U.S. bank based on deposits.
What really is in your wallet?
Capital One Financial Corp. (NYSE:COF) possesses a sizable market capitalization of just over $33 billion. Although the company has many positive attributes in terms of investment potential, its shares are down approximately 1.3% year-to-date.
One potential drawback of late is the company’s payment in excess of $3 million in order to settle federal civil charges for under-reporting more than $120 million in losses in its auto loan segment. These losses occurred in the months leading up to the 2008 financial crisis.
Even so, Capital One Financial Corp. (NYSE:COF) is strong in numerous areas, including impressive earnings growth which were up nearly 23% during the first quarter of 2013. In addition, the firm’s PEG ratio is also low at 1.25, which is a positive sign for a financial services operation.
While income is only $0.20 per share, analysts expect Capital One shares to rise nearly 13% over the next 12 months. This is great news for both potential shareholders as well as current investors, who are seeing roughly $6.5 in EPS this year. With a net profit margin in the high double-digits, Capital One Financial Corp. (NYSE:COF) shares have very good upside potential, especially if the overall market continues to improve.
Giving credit to other big players in the financial services market
Another financial services giant, Citigroup Inc (NYSE:C), is also faring nicely in the post-recessionary economy. This global diversified financial services holding company provides consumers, businesses, and governments with numerous financial products and services.
Citigroup Inc (NYSE:C) has been preparing itself regarding an agreement with ING Groep NV (ADR) (NYSE:ING) to purchase ING’s custody and securities business. Although the deal may not be fully finalized until the first quarter of 2014 as it is currently awaiting regulatory approvals, the company may stand to substantially profit as Citigroup Inc (NYSE:C)‘s custody network will broaden to more than 95 markets and 62 countries.
Though selling custody services, mostly in the central and eastern Europe, the deal will help ING Groep NV (ADR) (NYSE:ING) scale back its commercial banking operations.
The sale isn’t expected to generate any significant effect on ING’s future earnings any time soon, as it still faces many other regulatory hurdles. ING Groep NV (ADR) (NYSE:ING) is also closing its lease operation in many countries and has substantially reduced its equity capital markets operations.
While Citigroup Inc (NYSE:C)’s share price is currently hovering near its 52-week high mark, it appears that there is still some room for appreciation, especially in light of its growth in the first quarter of fiscal 2013. In addition, Citigroup Inc (NYSE:C) is also likely to continue with its steady dividend payment to its shareholders, although the current yield is only 0.1%.
Recently, Citigroup was appointed as the depository bank for The Coca-Cola Company (NYSE:KO) HSBC Holdings plc (ADR) (NYSE:HBC), one of the largest bottlers and vendors in the world. This was due in large part to Citigroup Inc (NYSE:C)’s investor relations expertise as well as its global distribution network.
One for the emerging nations
Even with good upside potential in other financial services entities, it is likely that one of the ultimate opportunities for both growth and healthy income is in HSBC Holdings plc (ADR) (NYSE:HBC)— a financial services giant that focuses on the areas of wealth management and retail banking. One of the biggest reasons for this company’s substantial growth potential is its profits from key developing regions across the globe.
For example, HSBC Holdings plc (ADR) (NYSE:HBC) brought in profit before tax in Hong Kong of more than $7.5 billion, representing an increase of 30% in this region alone. Even better, the firm took in more than $10 billion before tax in the remainder of the Asia-Pacific region, witnessing 40% profit growth there.
Currently, HSBC Holdings plc (ADR) (NYSE:HBC)’s shareholders receive a dividend payment of $3.60 per share. This equates to a dividend yield of 6.6%. In addition, the company’s share price is expected to rise nearly 11.5% in the next 12 months. Not bad for either income or growth seeking investors.
The prospects going forward
Similar to Citigroup and HSBC Holdings plc (ADR) (NYSE:HBC), Capital One Financial Corp. (NYSE:COF) will need to continue its movement into more international markets in order to capture the potentially substantial opportunities that lie in both developed and emerging economies around the globe.
In doing so, there is likely to be a tremendous opportunity in moving these economies towards more “cashless” transactions citing convenience and security. In addition, the further use of credit in such areas may also spur additional opportunity for other services, such as merchant payment systems for businesses.
In addition, should one or all of these companies continue to forge new relationships with large institutions as depository institutions and/or providers of merchant services, it is likely that revenue will increase further and improve their bottom lines.
The bottom line
Given the economic turnaround of late, investors will likely see profits in many of the stronger financial services entities such as Capital One Financial Corp. (NYSE:COF), Citigroup, and especially HSBC Holdings plc (ADR) (NYSE:HBC). With the situation in the U.S. much more positive than that of just a few years ago, these companies will likely see moderate growth in the country, as well as substantial growth potential from abroad.
The article Consider These Financial Giants for Your Portfolio originally appeared on Fool.com is written by Nauman Aly.
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