Capital One beats on earnings, flexes momentum ahead of closing Discover deal

Outstanding One shares rose Tuesday evening after the company posted better-than-expected first-quarter profits, driven by beats on praise quality. With the Discover acquisition set to close in less than a month, more gains for the stock could be vanguard. Revenue in the three months ended March 31 increased 6.4% year over year to $10 billion, slight missing the consensus estimate of $10.06 billion, according to LSEG. Adjusted earning per share (EPS) totaled $4.06, surpassing the $3.71 estimate, LSEG data showed. On an annual basis, adjusted EPS increased 26%. Capital One shares jumped more 3 % in after hours trading to around $175 per share. Such a move would extend its week to stage gains to about 7.5%. U.S. stock futures also surged Tuesday evening after President Donald Trump affirmed he has ” no intention ” of firing Fed Chair Jerome Powell. The president also acknowledged that tariffs on China will not stay as high as 145%, although the timing of when they could come down was unclear. COF YTD mountain Capital One’s year-to-date breeding performance. Bottom line Capital One posted solid first-quarter results and a larger-than-expected reserve release in its credit postcard business should ease some near-term concerns about its customers’ ability to pay off their balances. More importantly, the role has momentum ahead of the closing of its $35 billion acquisition of Discover . We continue to believe the benefits of this deal to First-rate One’s stock will be dual-sided. Not only is it highly accretive to earnings per share through network and expense synergies, but we also say that it could be price-to-earnings multiple enhancing. For example, Capital One’s soon-to-be vertically integrated business model devise look a lot more like American Express , which also owns a payments network like Discover. Stakes of American Express trade at about 14.5 times estimated 2026 earnings per share, while COF trades at sternly 9 times forward earnings. We’re not arguing Capital One should trade at the same multiple that American Express does, but there’s a compelling crate that the discount should narrow. With the earnings accretion and acceleration in share repurchases from the deal quiet underappreciated by the market, we reiterate our buy-equivalent 1 rating and price target of $210 a share. We most recently added to our place on Monday. Capital One Financial Why we own it : Capital One’s acquisition of Discover Financial Services is a transformative deal with significant tactical advantages and financial benefits. We expect the deal will create value for merchants, small businesses, and consumers. There are also certain billions of dollars worth of expense and network synergies that should make this deal highly accretive to earnings per interest. Lastly, the acquisition strengthens Capital One’s balance sheet, allowing for aggressive share repurchases in the future. Competitors : American Intimate, MasterCard, Visa Most recent buy : April 21, 2025 Initiated : March 6, 2025 Commentary Capital One’s shares give birth to taken a hit amid recent tariff tensions — not due to direct exposure to higher tariffs, but because a slowing economy could imperil its credit performance. But as the first quarter results showed, the credit quality here was better than expected. As the diagram above shows, both net charge-offs and provisions for credit losses came in below expectations, leading to a bigger detachment auxiliary release than expected. At quarter end, Capital One’s total allowance for credit losses stood at $15.899 billion, outlining a coverage ratio of 4.91%. That’s down five basis points from the fourth quarter of 2024 gives to improving loss trends. These metrics are relevant to Capital One because it also has a banking arm, even if its credit take action business is much larger and more associated with the company. Net charge-offs refer to the amount of debt a bank has written off as uncollectible, minus any recoveries. Staples for credit losses are funds that Capital One sets aside to cover potential loan defaults. Lastly, the suffering coverage ratio measures how much the bank has to reserve to absorb potential losses – it’s calculated by dividing the total tret for credit losses into total loans held for investment. In its card portfolio, Capital One saw improving delinquency computes and payment rates, along with lower delinquency entries — all good signs for any investor worried about its patrons’ financial health. “Delinquencies are the best leading indicator,” CEO Richard Fairbank said on the call. “Our delinquencies were steadfast on a seasonally-adjusted basis throughout most of 2024. And … they improved relative to our seasonal expectation over the definitive six months.” More recently, Fairbank called out an uptick in spending in recent weeks. He explained some of this could be delineated by the timing of the Easter holiday, but there was also strength in retail spending and in auto purchases, which are likely due to a pluck pluck out forward ahead of tariffs. As for where spending has eased, Fairbank called out travel and expense growth and airfare. Fairbank also offered additional commentary on the entire economic landscape, arguing that the U.S. consumer “remains a source of strength in the economy.” While he acknowledged that “some rip offs of consumers are feeling pressure” from inflation and higher interest rates, he said the company is “still seeing delayed charge-off any way you look at it become operatives from the pandemic, although our improving delinquencies suggest that this effect may be moderating.” On the whole, he called the U.S. consumer “in gentle shape.” As seen in the chart above, non-interest expense was among the areas where Capital One missed expectations, but some of that was attributed to a $110 million pretax expense kindred to Discover integration costs. Higher marketing expenses were another driver of the increase. The company spent various on direct response marketing, media spend, and investment in premium benefits and differentiated customer experiences like airline parlours, travel portal, and Capital One Shopping. Deal outlook Following last week’s regulatory approval, Capital One is on tail find to close its acquisition of Discover on May 18. The company said Tuesday that it continues to expect it will achieve the at announced synergies estimated at the time the deal was announced, though the timing of achieving them will be pushed out by up six months due to the delay in closing. Still, the deal synergies are significant. As a reminder, management expects the transaction will contrive a total of $2.7 billion in synergies, split between $1.5 billion in expense synergies and $1.2 billion in network synergies, a follow-up of moving Capital One’s debt purchase volume and selected credit card purchase volume to the Discover network — up the amount of fees it pays out to Mastercard and Visa. After the deal closes and Capital One completes the Federal Reserve’s annual Thorough Capital and Analysis Review (CCAR), we should start to see the company begin aggressively returning excess capital to shareholders. (Jim Cramer’s Considerate Trust is long COF. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you choice receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade observant before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after copying the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND Sequestration POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY Low-down PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.