Capital One Financial seems primed for potential growth, especially following its acquisition of Discover, as noted by Evercore ISI. The firm recently elevated Capital One’s stock rating to outperform from in line, setting a price target at $200. This target suggests a promising 20.9% upswing from Tuesday’s closing figures. However, Capital One hasn’t had the easiest ride this year, dipping more than 7%. Over the past month alone, the stock has slid nearly 16%, outpacing the S&P 500’s own declines of over 5% since the start of the year and approximately 8% this past month.
Reflecting on this, analyst John Pancari pointed out that the current stock valuation overlooks the long-term earning potential and returns that could arise from the merger of Capital One with Discover. He acknowledged certain risks, like signs of a weakening U.S. consumer, delays in finalizing the Discover deal, potential increases in business investments, and the recent outperformance of Capital One shares. Yet, he maintains that these shares still offer significant upside, despite these challenges.
Capital One announced its plan to acquire Discover for $35.3 billion last year, and Pancari anticipates the deal reaching completion in the second quarter of 2025. Although he adjusted his earnings projections for 2025 and 2026 slightly downward and adopted a more cautious outlook for 2027, he still expects a compound annual growth rate of 17.7% in earnings per share alongside a 19.5% return on tangible common equity by 2027.
Pancari also mentioned that while a weaker U.S. consumer could impact credit and spending trends, Capital One’s unique traits could provide earnings potential even amid potential credit and revenue challenges. “Possible delays in closing the Discover deal and increased investments in network, regulatory, and compliance areas might pose risks to our projections, but we’ve factored these into our conservative forecasts,” he explained.
Considering Pancari’s stance, he aligns with the majority of analysts covering Capital One. Out of 22 analysts, 12 have given the stock a strong buy or buy rating, according to LSEG data. The average price target indicates a potential upside of over 33%. In response to Pancari’s upgrade, Capital One shares rose by 1.5% in premarket trading on Wednesday.
