Discover Capital One's Strategy for Long-Term Stock Growth

In mid-May of 2025, Capital One Financial Corporation (NYSE: COF) finalized its massive $35.3 billion acquisition of Discover Financial Services (DFS). This landmark move has already helped propel its stock more than 25% higher. This impressive performance has brought Capital One’s share price near all-time highs, leading investors to a critical question: after such a powerful run, is the best of the growth story already priced in?

A detailed examination of the new company structure and strategy reveals that the transformation may be just beginning. The data presents a compelling case for continued long-term growth in the stock, built on a newly powerful and more profitable business model.

What Network Ownership Means for Capital One’s Profits

The most important change from this merger is a concept known as vertical integration. Think of it this way: before the deal, Capital One was renting space on the payment highways owned by Visa and Mastercard. Every time a customer used a Capital One card, the company paid a toll. Now, by owning the Discover network, Capital One owns one of these major highways itself.

This shift from network renter to network owner has a direct and significant financial impact. Management projects the deal will generate an estimated $2.7 billion in annual synergies by 2027. Synergies refer to the financial benefits that arise from the combination of two companies. In this case, they stem from cost savings (no longer paying tolls to Visa and Mastercard) and the new revenue opportunities that network ownership will bring them. 

For investors, this is critical. Those billions of dollars are expected to flow directly to the company's bottom line, increasing profits and making the business more valuable on a per-share basis. This establishes a new, recurring, and high-margin source of revenue, which is a powerful foundation for supporting a higher long-term stock valuation.

How Capital One Plans to Grow Earnings

Beyond the immediate benefits of owning a network, the merger creates several clear pathways to future growth. These catalysts are expected to fuel higher earnings and, consequently, a higher stock price over time.

• A Built-In Growth Opportunity: As the largest credit card issuer in the U.S. by outstanding loans, Capital One has a massive, built-in customer base. The company can now strategically migrate its card portfolios to its own Discover network. Every card that moves over becomes more profitable because Capital One keeps the transaction fee. This provides a long-term, internal growth engine that can be methodically turned on for years to come.
• A Clear Path to Higher Earnings: This new model's financial goal is clear. Management projects the acquisition will boost earnings per share (EPS) by over 15% by 2027. A clear and credible path to double-digit EPS growth is one of the most reliable drivers of stock price appreciation.
• Driving High-Value Innovation: Owning its network gives Capital One the freedom to innovate new products and services. The company can now develop a premium travel card more effectively to compete with high-end products like the Chase Sapphire Reserve and American Express Platinum. Success in this market would attract higher-spending, higher-credit-quality customers, diversify its business, and create powerful new revenue streams that have not yet been factored into the current stock price.

Why Wall Street Sees More Upside

Even after its strong rally, a closer look at the company’s valuation and Capital One’s analyst data suggests the stock remains reasonably priced. A key metric for this is the forward price-to-earnings ratio (P/E), which compares a stock's current price to its expected earnings over the next 12 months. It’s a way of asking, "What am I paying today for tomorrow's profits?"

With a forward P/E of approximately 14x, Capital One presents an attractive valuation. This is particularly notable given the company's clear trajectory for substantial earnings growth. In comparison, the financial sector's average forward P/E is around 15.5x, further indicating that Capital One's valuation still has potential for appreciation.

Financial professionals and industry analysts echo this view. The consensus rating from 18 analysts is a Moderate Buy, with 14 recommending to Buy the stock. While four Hold ratings placed early in the year are still weighing down the overall rating, multiple firms have raised price targets or upgraded their ratings from Hold since the deal closed, suggesting that the remaining four holdouts may soon follow suit.

These upgraded price targets, which represent analysts' 12-month forecasts for the stock's value, suggest plenty of room for growth. Since the company completed the merger, five firms have rerated the stock, with the average rerating placing it around $247.00. This suggests a healthy upside as the market continues to adjust its valuation of the stock.

A Transformed Company Built for Growth

The acquisition of Discover was a strategic game-changer that created a fundamentally more profitable and powerful company. The clear path to higher earnings, driven by massive synergies and new growth catalysts, provides a strong rationale for continued stock strength.

For investors with a long-term perspective, Capital One now appears well-positioned to deliver significant shareholder value in the years ahead, making a compelling case that its new chapter of growth has only just begun.

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The article "Discover Capital One’s Strategy for Long-Term Stock Growth" first appeared on MarketBeat.