Is Capital One Set to Ride on NII Growth Amid Relatively Higher Rates?

With the Federal Reserve remaining cautious amid tariff policy uncertainties and less likely to implement a massive rate cut this year, Capital One COF remains one of the key beneficiaries of such a higher-for-longer interest rate environment. This will drive the company’s net interest income (NII).

Moreover, the acquisition of Discover Financial in an all-stock transaction valued at $35.3 billion in May reshaped the landscape of the credit card industry and is expected to boost COF’s NII in the upcoming quarters.

Further, the company has been expanding its credit card loan portfolio to boost NII. COF’s credit card loans and net loans held for investments (LHI) witnessed a five-year compound annual growth rate (CAGR) of 4.9% and 4.3%, respectively, for the year ended 2024.

In light of this, Capital One’s NII reflected a CAGR of 6% over the five years ended 2024. The momentum continued for credit card loans, net LHI and NII during the first half of 2025. This was partly driven by the Discover acquisition.

Thus, demand for credit card loans, relatively high rates and Capital One’s efforts to scale its business are expected to drive NII higher.

How Capital One’s Peers Are Performing

Capital One’s peers like Ally Financial ALLY and OneMain Holdings, Inc. OMF have been benefiting from a higher-for-longer interest rate backdrop.

Ally Financial’s net financing revenues witnessed a CAGR of 5.4% over the last five years on the back of strong origination volumes and retail loan growth. Further, Ally Financial has been restructuring its operations to create a simplified and streamlined organizational structure to achieve higher efficiency.

Similarly, OneMain’s NII has witnessed a CAGR of 3.8% over the last five years. Moreover, the company’s loan mix of Front Book and Back Book aims for revenue sustainability while maintaining upside potential in a rapidly changing macroeconomic environment. Management aims to reduce Back Book over time for higher margins. Also, the acquisition of Foursight in 2024 strengthened OneMain’s auto finance capabilities.

Capital One’s Price Performance, Valuation and Estimates

Capital One shares have soared 20.4% this year, underperforming the industry’s gain of 44.9%. 

From a valuation standpoint, COF trades at a 12-month forward price-to-earnings (P/E) of 11.88X, above the industry average. 

The Zacks Consensus Estimate for Capital One’s 2025 and 2026 earnings indicates growth of 20.1% and 12.4%, respectively, on a year-over-year basis. In the past week, earnings estimates for 2025 have moved marginally upward, while that for 2026 has remained unchanged.

COF currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research