Capital One Just Flashed a Buy Signal—New Highs Could Be Next

Key Points

• Capital One’s first full quarter since the Discover merger delivered strong upside, with beats across key financial metrics and a boost in margins.
• Credit performance held steady, easing concerns heading into earnings season and showing resilience in the lending environment.
• A sizable buyback and dividend increase reflect management’s confidence, while analyst upgrades and price action point toward a potential move to new highs.

Capital One Financial Corp. NYSE: COF left no room for doubt for investors who may have been sitting on the fence.

The company delivered a stellar earnings report. Based on the stock price and analyst reaction immediately following the report, it’s a good time to buy the financial services company’s stock.

COF stock has risen by 3.39% during midday trading following earnings news, approaching its all-time high. While this might appear as a cautious move for investors, for Capital One, it’s probably just the beginning.

Capital One Checked All the Boxes

Capital One completed its merger with Discover Financial in May, making this the first fully inclusive earnings report since the merger. It’s fair to say the impact was positive.

Revenue of $15.36 billion beat expectations of $15.06 billion and was 23% above the prior quarter. Adjusted earnings per share (EPS) of $5.95 beat estimates of $4.25 and were 8.5% above the prior quarter. The company’s net interest margin also increased to 8.36%. That was up approximately 75 basis points, of which about 45 basis points came from Discover.

However, heading into this earnings season, the questions surrounding financial stocks, especially those that extend credit, focused on two things: What would be their provision for credit losses, and was their net charge-off ratio rising or falling? Capital One was particularly interested in those questions because of the data from Discover.

It turns out, it was no big deal. Capital One reported:

• A smaller-than-expected provision for credit losses of $2.71 billion, although it was higher than the $2.48 billion recorded in the same quarter last year.

• Its net charge-off ratio declined to 3.16%, down from 3.27% in the same quarter last year.

Buybacks and Dividend Increases Are Bullish for Shareholders

Shareholders got more good news when Capital One announced a new $16 billion share repurchase program that starts immediately. The buyback is worth almost 12% of the company’s current market cap and replaces the one it issued in April 2022.

The company also announced a 33% increase in its quarterly dividend from 60 cents per share to 80 cents, which will start with the next distribution.

COF Stock Has a Bullish Setup to New Highs

COF stock is trading near the top of its Bollinger band and has an RSI of approximately 58 (not shown). This setup is mildly bullish without being overbought.

The company’s stock has shown a pattern in which price action at the upper band has led to a pullback or consolidation. However, these pullbacks have tended to be modest corrections, not steep ones.

That could be the case here with the MACD showing only minimal separation after a bullish crossover.

Investors will want to look for signs of sustained strong momentum after this bullish post-earnings move, most likely engineered by high-speed trading.

Even if there is a pullback, the stock is unlikely to fall all the way back to the $202 level, which served as support on two separate occasions in the last 30 days.

Investors may want to look at an area around $214. Analysts have been quick to chime in. 

The Capital One analyst forecasts on MarketBeat show five analysts raising their price targets, with one analyst reiterating its target. In all but one case, the targets are above the consensus price of $258.89.