Evercore upgrades Capital One as it sees a 21% upside on Discover deal
Investing.com -- Evercore ISI upgraded Capital One Financial Corp (NYSE:COF) to "Outperform" from "In Line," focusing on long-term earnings upside from its pending acquisition of Discover Financial Services (NYSE:DFS), offsetting the near-term risks like consumer weakness and regulatory concerns. Brokerage’s price target on the stock was $200, roughly a 21% upside.
A delayed DFS deal closing, higher-than-expected investment spending, and recent stock outperformance are some potential hurdles. But Capital One’s unique factors provide earnings optionality even in a softer credit environment.
The firm now expects the DFS deal to close in the second quarter of 2025, incorporating a more conservative expense outlook into its estimates. It lowered its 2025 EPS forecast to $16.18 from $16.62 and 2026 EPS to $19.42 from $19.57, while introducing a 2027 estimate of $23.03.
Evercore sees Capital One’s return on tangible common equity expanding by 580 basis points to 19.5% by 2027, driven by Discover integration, capital returns, and efficiency gains. The firm forecasts Capital One’s net interest margin reaching 8.0% by late 2025, with further expansion in 2026 and 2027, supported by loan growth and higher-yielding Discover assets.
While recent cracks in U.S. consumer health remain a risk, Evercore does not yet see a re-acceleration in delinquencies and loss rates. It also expects Capital One to accelerate share buybacks post-acquisition, modeling $7 billion in repurchases in 2026 and $10 billion in 2027.
The $200 price target is based on 10.3x Evercore’s 2026 EPS estimate and 2.0x pro forma tangible book value.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads.Should you invest $1,000 in DFS right now?
Don't miss out on the next big opportunity! Stay ahead of the curve with ProPicks AI – 6 model portfolios powered by AI stock picks with a stellar performance in 2024.
Unlock ProPicks to find out