Worries about consumer credit quality are beginning to creep into Wall Street's assessment of bank stocks.

Thomas D. McCandless of PaineWebber Inc. recently cut his investment rating on Capital One Financial Corp. to "attractive from "buy" despite his high regard for the credit card issuer.

The analyst said he was "increasingly concerned about the degree of deterioration in overall consumer credit. Delinquencies have begun to rise this year, and losses are clearly on an uptrend."

Mr. McCandless said Capital One, based in Richmond, Va., appears to be better positioned than similar specialized banking companies "in terms of its balance sheet strength, underwriting discipline, and multiple growth diversification strategies."

Nevertheless, he said he was "fearful that the market will not be able to differentiate adquately among card issuers if all are experiencing rising delinquencies."

And he said he is concerned that delinquencies "could rise faster than is generally expected for the card industry."

Mr. McCandless thinks Capital One shares remain relatively undervalued, but that "multiple expansion will be difficult to achieve" if investors begin fretting about the credit card industry in general.

"Because it's so new, we've felt this company would probably need a few more quarters to reach the valuation level of its peers," he said. "That is now looking harder to do. Once delinquencies start upward, the trend doesn't reverse itself that quickly."

The analyst said he does not see downside risk in the stock. "It may be a case of Capital One (shares) standing still and the other companies in this group coming back toward their level," he said.

"I'm actually more worried about Capital One's competitors than I am about Capital One itself," Mr. McCandless said.

Capital One was spun off as a separate entity last November by Signet Banking Corp. at $16 per share. The bulk of its shares were offered to the public in an offering last February.

In Monday afternoon trading, the shares were up 25 cents to $23.375.

A less cautious perspective on Capital One is offered by analyst Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp. At current price levels, he sees the shares as "one of those rare great investment opportunities."

The analyst noted that Capital One has been able to keep increasing its share of the overall credit card business despite a highly fragmented market.

Moreover, the company's growth prospects "are considerably brighter than most believe because its 'information-based strategy' can transcend credit cards and extend to virtually all financial services products," he maintains.

Mr. Brown pointed out that Wells Fargo & Co., using a similar strategy, has been successful in the direct marketing of small business loans. It recently expanded that effort from California to a nationwide focus.

He also notes the relative cheapness of Capital One compared to some other big credit card issuers. Its shares sell for 12.3 times expected 1995 earnings, versus price-earnings ratios of 14.4 for Advanta Corp. and 15.5 for MBNA Corp.

Mr. Brown "sees no reason why the valuation gap between Capital One and the other card specialists will not narrow over time."

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