Capital One completed its acquisition of Discover Financial Services on May 18 - Getty Images

Capital One Financial Corp. announced Sunday it had completed its acquisition of Discover Financial Services, ending a long regulatory approval process after announcing the merger agreement in February 2024.

Through Friday, Capital One’s COF stock had returned 10.9% for 2025, while Discover shares had returned 16% as investors became more confident the deal would be completed. The KBW Bank Index had returned 2.8% so far this year. Those figures include reinvested dividends.

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Investors might be wondering whether or not the postmerger Capital One is now fully valued. In a note to clients on Sunday, Keefe, Bruyette & Woods analyst Sanjay Sakhrani rolled out his firm’s 2027 earnings-per-share estimate of $22.42 for the postmerger Capital One.

Capital One’s stock closed at $197.22 on Friday. So if we use KBW’s 2027 EPS estimate, Capital One would be trading at a price-to-earnings ratio of 8.8 — a low valuation, as you can see from the table below.

Forward price-to-earnings ratios are typically based on consensus earnings estimates for the following 12 months among analysts working for brokerage or research firms. But Capital One will go through a transition as it integrates Discover. This will shift Capital One more toward credit-card lending. Card loans made up 49% of the bank’s average loans held for investment during the first quarter. And along with Discover’s card loan portfolio, Capital One now owns Discover’s payment-processing network, which handles Discover-branded card transactions. American Express Co. AXP also has its own processing system.

Based on their March 31 financial reports, the combined Capital One and Discover had $638 billion in total assets, ranking eighth among the largest U.S. bank holding companies. So here are the largest 20 U.S. banks, with two P/E ratios — the customary forward P/E using the consensus estimates among analysts polled by FactSet for the next 12 months, which is marked “NTM,” and one based on consensus 2027 EPS estimates.

Largest 20 U.S. banks Ticker City Forward P/E – NTM Price/ consensus 2027 EPS estimate Total assets ($bil) JPMorgan Chase & Co. JPM New York 14.7 12.6 $4,358 Bank of America Corp. BAC Charlotte, N.C. 12.0 9.3 $3,349 Citigroup Inc. C New York 9.9 6.6 $2,572 Wells Fargo & Co. WFC San Francisco 13.0 9.9 $1,950 Goldman Sachs Group Inc. GS New York 13.9 11.2 $1,766 Morgan Stanley MS New York 15.5 13.1 $1,300 U.S. Bancorp USB Minneapolis 10.2 8.5 $676 Capital One Financial Corp. COF McLean, Va. 11.7 9.1 $638 PNC Financial Services Group Inc. PNC Pittsburgh 11.5 9.3 $555 Truist Financial Corp. TFC Charlotte, N.C. 10.2 8.4 $536 Charles Schwab Corp. SCHW Westlake, Texas 20.0 14.9 $463 Bank of New York Mellon Corp. BK New York 13.2 10.8 $441 State Street Corp. STT Boston 10.3 8.4 $373 American Express Co. AXP New York 19.2 15.0 $282 Citizens Financial Group Inc. CFG Providence, R.I. 10.5 6.8 $220 Fifth Third Bancorp FITB Cincinnati 10.8 8.9 $213 M&T Bank Corp. MTB Buffalo, N.Y. 11.3 9.1 $210 Huntington Bancshares Inc. HBAN Columbus, Ohio 11.1 9.2 $210 Ally Financial Inc. ALLY Detroit 9.0 6.0 $193 KeyCorp KEY Cleveland 11.2 8.7 $189 Source: FactSet

The average forward P/E ratio for these 20 banks is 12.5, while the average P/E based on Friday’s closing prices and consensus 2027 EPS estimates is 9.8. Capital One trades at a forward P/E of 11.7 and at 9.1 times the consensus 2027 EPS estimates, which is slightly above the 8.8 valuation based on KBW’s 2027 EPS estimate.

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To add some more perspective to the valuations, the S&P 500’s forward P/E valuation is 21.6, based on consensus 12-month EPS estimates weighted by market capitalization. Over the past 20 years, the index’s average forward P/E has been 16.6, according to FactSet.

For the banking-industry group within the S&P 500 SPX, the current forward P/E is a weighted 12.2, and the 20-year average has been 11.5, according to FactSet. The banks currently trade for 56% the valuation of the full S&P 500, while they have traded at an average valuation of 69% over the past 20 years. So the banks appear relatively inexpensive — and Capital One even more so.

“With shares trading at a material discount to bank peers on average, we believe COF warrants a more in-line multiple given the potential for higher levels of capital return, asset diversification, and deposit funding similar to regional banks, and leverage to a rising interest rate environment,” Sakhrani wrote.

The analyst called his 2027 EPS of $22.42 his “base case” for Capital One but added that there was “$30 of potential EPS power” that year depending on cost synergies, “normalization” of credit quality for the Discover card portfolio to its pre-2020 state and a reduction of the share count through stock buybacks.

The consensus price target for Capital One among analysts polled by FactSet was $216.32 before the open on Monday. Wall Street analysts typically set 12-month targets. The target was 10% higher than Capital One’s closing price on Friday. But in this case, 12 months might be too short a period for long-term investors.

Sakhrani called the merger “a transformative deal that will benefit shareholders for the next several years.” He added: “There remains significant upside potential of around 15%-50%.”

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