Bank of America holds Buy rating on Capital One as credit quality improves
Analysts maintain a $253 price objective on the lender, citing healthy credit trends and expected synergies from the Discover integration, despite a slowdown in domestic card growth.
Bank of America has maintained a Buy rating on Capital One Financial, reaffirming a price objective of $253. The valuation represents an 11.3% upside from the share price of $227.34 used in the report. Analyst Mihir Bhatia noted that while domestic credit card loan growth has slowed, the lender’s credit performance remains healthy, supporting a premium valuation multiple based on 2027 earnings estimates.
Capital One ended July with $258.9 billion in domestic credit card loans, according to a filing with the Securities and Exchange Commission. Year-on-year growth for the portfolio slowed to 1.92% in July, down from 2.58% in June. Bhatia indicated that card balances have grown at approximately 2% over the past year and does not expect a meaningful acceleration until headwinds associated with the Discover integration and related borrow-out activity subside.
Despite the slower growth in card balances, credit quality metrics showed improvement. The annualized net charge-off rate for domestic cards fell by 26 basis points month-on-month to 4.12%, a decline that exceeded the historical July average. The 30-day-plus performing delinquency rate rose by 10 basis points to 3.48%, a movement BofA described as in line with historical seasonality. The bank is modelling end-of-period card loans to increase by about 1% sequentially in the third quarter.
Auto lending provided a contrasting signal of stronger growth. Capital One reported $90.5 billion in period-end auto loans in July, with year-on-year growth accelerating to 12.05% from 11.62% in June. The segment recorded a net charge-off rate of 1.48% and a 30-day-plus delinquency rate of 4.39%. Bhatia is currently modelling domestic card net charge-offs to fall a further 36 basis points sequentially in the third quarter to 4.35%.
The positive outlook is underpinned by the ongoing integration of Discover, which Capital One completed in May 2025. CEO Richard Fairbank stated in July that the integration was proceeding well, 14 months after the deal closed. The company reported $3 billion in second-quarter net income, with total net revenue increasing 4% sequentially to $15.9 billion. BofA cites expected expense synergies, strong capital-return potential, and a resilient cardholder base as key drivers for the stock.
The $253 price target is based on a 10.5-times multiple of the bank’s 2027 earnings-per-share estimate. This multiple sits at the high end of Capital One’s historical range of roughly 7 to 11 times earnings. BofA believes the premium is justified by the anticipated realisation of synergies and an optimistic credit outlook, though risks such as weaker revolving credit growth and rising loan losses remain present.
