Can Capital One Continue to Ride on NII Despite Recent Rate Cuts?

Core Insights - The Federal Reserve has lowered interest rates by 50 basis points this year to support economic growth, impacting Capital One's asset-sensitive balance sheet and net interest income (NII) [1] - Capital One's NII has shown a 6% CAGR over five years, driven by higher interest rates and robust demand for credit card loans, despite rate cuts in 2024 [2][4] - U.S. credit card balances increased by $24 billion sequentially, indicating strong demand, with Capital One expanding its credit card loan portfolio [3] Capital One's Performance - Capital One's NII is expected to rise due to strong credit card loan demand, improved funding mix, and lower funding costs, despite lower yields from interest rate cuts [4] - The company's credit card loans and net loans held for investments (LHI) have shown a five-year CAGR of 4.9% and 4.3%, respectively, continuing into 2025 [3] Peer Comparison - Ally Financial's net financing revenues have a CAGR of 5.4% over the last five years, supported by strong origination volumes [6] - OneMain's NII has a CAGR of 3.8% over the last five years, with a focus on revenue sustainability and higher margins through loan mix adjustments [7] Market Performance and Valuation - Capital One shares have increased by 12.7% this year, underperforming the industry growth of 40.4% [8] - The company trades at a 12-month forward P/E of 10.19X, above the industry average [10] Earnings Estimates - The Zacks Consensus Estimate indicates earnings growth of 35.8% for 2025 and 4.6% for 2026, with upward revisions to $18.96 and $19.83, respectively [11]