BTIG Turns Bullish on Capital One Stock (COF) Regardless of the Discover Financial Merger
BTIG upgraded financial services company Capital One Financial Corporation (COF) to Buy from Hold with a price target of $208. Notably, BTIG analyst Vincent Caintic said that he is bullish on COF stock regardless of the outcome of its potential merger with credit card issuer Discover Financial Services (DFS), thanks to the company’s significant excess capital. Capital One announced a $35.3 billion deal to acquire Discover Financial in February 2024. While the acquisition is approved by shareholders of both companies, it is facing regulatory hurdles.
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Last week, COF and DFS stocks declined after a Capitol Forum report stated that the U.S. Department of Justice (DOJ) may oppose the acquisition, as it could be anticompetitive for the subprime sector.
Here’s Why BTIG Upgraded COF Stock to Buy
Caintic thinks that COF stock would be worth $208 if the merger with Discover Financial fails. If the deal goes through, then analyst expects Capital One stock to be worth $427. The analyst contended that, irrespective of the outcome of the merger, he has a bullish view on Capital One stock due to the significant excess capital that the company has accumulated since the merger was announced in February 2024. Based on Caintic’s calculation, COF has excess capital of $13.1 billion.
If the merger doesn’t go through, then Caintic expects Capital One to repurchase stock worth $25 billion over the next three years, which represents 12% of the company. The buyback would drive his 2026 EPS estimate up by 9% from the previous forecast to $20.83 and increase the 2027 EPS estimate by 18% to $27.57.
Further, the analyst stated that Capital One’s earnings power would be even greater if the Discover deal is approved. Regardless of the deal’s outcome, Caintic thinks that Capital One has been “under-earning” over the past two years due to higher expenses, increased regulatory scrutiny, and the shift in management’s focus from growth opportunities due to the distraction caused by the deal.
Overall, Caintic believes that Capital One is fundamentally stronger than both American Express (AXP) and Ally Financial (ALLY). He pointed out that COF was very early to tighten its underwriting practices, back in 2022, while American Express, Ally, and other lenders were moving into consumer lending. He added that rivals only recently reacted to higher losses and a more stressed consumer base. Consequently, the analyst believes that Capital One has the ability to grab market share from American Express, Ally, and other players.
Is COF Stock a Buy, Sell, or Hold?
Wall Street has a Moderate Buy consensus rating on COF stock based on 11 Buys and six Holds. The average Capital One Financial stock price target of $211.25 implies about 16% upside potential from current levels.
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