Capital One stock holds $232 target at KBW amid deal concerns

Published 18/03/2025, 13:18
Capital One stock holds $232 target at KBW amid deal concerns

Tuesday, Capital One Financial (NYSE:COF) maintained its Outperform rating and $232.00 price target from Keefe, Bruyette & Woods, despite recent concerns over a potential antitrust issue with its deal involving Discover Financial Services (NYSE:DFS). Shares of both companies experienced declines following a report from a competitor suggesting the Department of Justice (DOJ) might view the transaction as anti-competitive due to a high concentration of subprime lending.

Keefe, Bruyette & Woods analysts believe the market’s reaction may be an overreaction, as there has been no confirmation of the DOJ’s stance on the matter. The analysts pointed out that, in the case of bank mergers and acquisitions, the DOJ serves only in an advisory role, while the Federal Reserve and the Office of the Comptroller of the Currency have the authority to approve the deal regardless of the DOJ’s position.

The firm’s analysts observed that Capital One’s shares fell approximately 4%, and Discover Financial Services’ shares dropped around 8%. This movement was seen as validation of the analysts’ view that there is significant downside risk for both stocks if the deal were not to proceed. Capital One’s stock, trading at a P/E ratio of 14.1x and showing a year-to-date return of -7.05%, has demonstrated resilience with a 23% gain over the past year. InvestingPro data reveals the stock is currently trading below its Fair Value, suggesting potential upside opportunity. However, they noted that Capital One’s stock performance was stronger than Discover’s on the day, reinforcing their preference for Capital One in a scenario where the deal is not completed.

Keefe, Bruyette & Woods reiterated their positive outlook on Capital One, emphasizing that the current concerns appear exaggerated and not substantiated by any definitive statement from the DOJ. The analysts’ stance on the stock remains unchanged, with a bullish outlook on the likelihood of the deal’s approval.

In other recent news, Capital One Financial has been in the spotlight due to its proposed acquisition of Discover Financial Services, which has raised potential antitrust concerns. The Department of Justice (DOJ) is reportedly examining whether the deal could negatively impact the subprime lending sector, though no official statement has been made. Despite this, Capital One remains optimistic about securing approval for the $35 billion deal, emphasizing compliance with legal requirements. In response to these developments, Evercore ISI upgraded Capital One’s stock rating to Outperform, citing long-term earnings potential, although they noted risks such as potential delays in the Discover deal. Keefe, Bruyette & Woods (KBW) also maintained an Outperform rating for Capital One, asserting that concerns over antitrust issues may be overstated. Additionally, Capital One released its February charge-off and delinquency data, crucial for assessing credit risk, though specific figures were not disclosed. These metrics are regularly monitored by investors to gauge the company’s financial health. The situation continues to evolve, with market participants closely watching for further regulatory updates.

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