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.