Morgan Stanley resumes coverage of Capital One Financial with Buy equivalent

Morgan Stanley has resumed coverage of Capital One Financial (NYSE:COF) with an Overweight rating, considering benefits of the Discover acquisition and that the stock is not fully priced.

Shares were +0.83% pre-market to $219.30.

The financial holding company announced the completion of the Discover Financial acquisition on May 18.

“By acquiring Discover’s network, COF can now lift off the debit interchange restraints most banks face, with an immediate boost to fee revenues. We assume slightly better debit growth and network economics vs guidance, at $1.03bn in 2027 vs COF guiding to $1.0bn ~2 years from deal close in May,” said analyst Jeffrey Adelson.

“We estimate COF has among the highest levels of excess capital levels vs regulatory minimums among all banks and the highest in Consumer Finance, at nearly 20% of market cap. We expect COF to provide an updated view of capital targets/return on 2Q earnings in a few weeks,” said the analyst in a research note.

“We have been expecting impacts to consumer credit metrics to emerge later this year / into 2026, from tariffs and a resumption in student loan payments. Nonetheless, near-term data has continued to positively surprise,” noted Adelson.

“COF has guided to annual cost saves of ~$1.5B within 2 years, or ~23% of Discover’s operating expense. This appears reasonable compared to prior bank M&A deals, where acquirers have generally aimed to reduce an acquired bank’s annual expenses by 30-35%,” said the research note.

“The stock has had a nice run, up 22% YTD, but we still see upside as stock still not fully priced for coming synergies & ramp in capital return, deserves a higher multiple given the payments/network opportunity,” the note said, setting COF’s price target at $261.

The investment bank estimates Capital One’s 2026 EPS to come at $18.13 ($19.44 consensus) and 2027 EPS at $23.93 ($24.33 consensus).

Morgan Stanley’s rating aligns with the average sell-side analysts and Seeking Alpha authors rating of Buy. Meanwhile, the Quant sees the stock as Strong Buy.