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

Core Insights - The Federal Reserve's cautious stance amid tariff policy uncertainties suggests that Capital One (COF) will benefit from a prolonged higher interest rate environment, which is expected to enhance the company's net interest income (NII) [1][3] Group 1: Company Performance - Capital One's acquisition of Discover Financial for $35.3 billion is anticipated to reshape the credit card industry and boost COF's NII in the coming quarters [2][7] - The company has been expanding its credit card loan portfolio, achieving a five-year compound annual growth rate (CAGR) of 4.9% for credit card loans and 4.3% for net loans held for investments (LHI) for the year ending 2024 [2] - Capital One's NII has shown a CAGR of 6% over the five years ending 2024, with continued momentum in credit card loans and NII during the first half of 2025, partly driven by the Discover acquisition [3][7] Group 2: Peer Comparison - Capital One's peers, such as Ally Financial and OneMain Holdings, are also benefiting from a higher interest rate environment, with Ally Financial's net financing revenues growing at a CAGR of 5.4% over the last five years [4] - OneMain's NII has experienced a CAGR of 3.8% over the same period, with a focus on revenue sustainability and higher margins through a strategic loan mix [5] Group 3: Valuation and Estimates - Capital One shares have increased by 20.4% year-to-date, although this lags behind the industry's gain of 44.9% [6][7] - The company trades at a 12-month forward price-to-earnings (P/E) ratio of 11.88X, which is above the industry average [8] - The Zacks Consensus Estimate indicates earnings growth of 20.1% for 2025 and 12.4% for 2026, with recent upward adjustments for 2025 earnings estimates [9][10]