Why Did Capital One Stock Rise 36% In The Last Year?

Core Viewpoint - Capital One's stock has performed well, rising approximately 36% since early 2024, outperforming the S&P 500's 22% increase, but lagging behind American Express's 50% rise [1] Group 1: Acquisition of Discover Financial - Investors are optimistic about Capital One's all-stock acquisition of Discover Financial, with Discover shareholders set to receive 1.02 shares of Capital One for each share they own [2] - The spread between Discover's current market price and Capital One's offer has tightened to about 4.5%, down from over 12% when the deal was first announced [2] - Approval from the Office of the Delaware State Bank Commissioner has been granted, marking a significant regulatory hurdle cleared for the merger [2] - The potential re-election of Donald Trump is expected to facilitate the deal by reducing financial regulations and creating a softer antitrust environment [2] Group 2: Benefits of the Merger - The merger would create the largest U.S. credit card company by loan volume, as both companies together account for under 20% of consumer credit card balances [3] - Capital One could leverage Discover's proprietary card network, potentially reducing costs and enhancing its merchant network [3] - The deal allows for cross-selling opportunities of various financial products to Discover's customer base, which could increase revenues for the combined entity [3] Group 3: Recent Financial Performance - Capital One reported Q3 net earnings of $1.8 billion, remaining flat year-over-year, supported by rising net interest income and a higher loan and deposit base [4] - Provisions for credit losses increased by 8.7$2.48 billion, attributed to rising credit card debt and higher charge-offs [4] - The allowance for credit losses stands at $16.5 billion, which exceeds the current net charge-off rate, indicating adequate coverage for potential losses [4] Group 4: Stock Performance and Volatility - Capital One's stock returns have been volatile over the past four years, with annual returns of 49$162 per share, slightly below the current market price, indicating potential for future growth [6] - The uncertain macroeconomic environment raises questions about whether Capital One will underperform the S&P 500 in the next 12 months or experience significant growth [6]