Capital One Financial Corporation (COF): A Bull Case Theory

We came across a bullish thesis on Capital One Financial Corporation on Pacific Northwest Edge’s Substack by David. In this article, we will summarize the bull’s thesis on COF. Capital One Financial Corporation's share was trading at $206.36 as of June 24^th. COF’s trailing and forward P/E ratios were 17.34 and 13.48, respectively, according to Yahoo Finance.

Capital One’s acquisition of Discover Financial Services marks a transformative moment in the credit card and payments landscape, positioning the company as a direct rival to American Express in a way never seen before. While Capital One was already a dominant issuer in the credit card space—earning 86% of its Q1 2025 profits from credit cards—the acquisition grants it ownership of a full payment network for the first time.

This vertically integrated model mirrors that of American Express, which has long benefited from higher interchange fees due to its dual role as both network and issuer. Discover, although more broadly accepted than AmEx, lacked premium appeal. Capital One now controls both models and is positioned to scale aggressively. This move gives Capital One an economic moat that’s nearly impossible to replicate due to the complexity of establishing a reliable and widely accepted payments network.

CEO Richard Fairbanks emphasized their strategy to grow the Discover network globally, slowly increasing international acceptance before ramping up brand investment. With the infrastructure in place, Capital One can now issue co-branded rewards cards, shift more volume onto its own network, and potentially serve as a network provider for other institutions. Despite issuing new stock to fund the acquisition, Capital One’s strong history of buybacks and high free cash flow remains intact.

The moat created by owning a network, combined with network effects and switching costs, significantly enhances Capital One’s competitive position. In short, this acquisition elevates Capital One from a narrow-moat issuer to a formidable, wide-moat competitor with room to take share and grow earnings.

Previously, we covered a bullish thesis on Capital One Financial Corporation by Stock Analysis Compilation in December 2024, which highlighted the long-term earnings upside from cost synergies via Discover’s network. The company’s stock price has appreciated by approximately 17% since our coverage. This is because the thesis began to play out. The thesis still stands as integration remains underway. David shares a similar view but emphasizes Capital One’s emerging network moat and global ambitions.

Capital One Financial Corporation is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 93 hedge fund portfolios held COF at the end of the first quarter, which was 89 in the previous quarter. While we acknowledge the risk and potential of COF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

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