Capital One poured more than $35 billion into acquiring credit card rival Discover. After several quarters of weakness and a depressed stock price, CEO Richard Fairbank must now prove to investors that the deal is the game-changer it promises to be. The perfect stage to do that is Tuesday night, when the club, known as Capital One, reports its second quarter results. Earnings beats for the first time in the past two quarters are a good start, considering higher-than-expected expenses have contributed to a series of missed profits. Capital One has racked up a total of $1.8 billion in integration costs since the Discover deal closed last May, according to its securities filing for the first quarter ended March 31. To improve investor sentiment after the release of the second quarter and prevent a repeat of past post-earnings stock declines, management will need to do more than just book expenses and connect the dots. Capital One needs to clearly explain how bringing these transaction costs under the Discover umbrella can accelerate broader transformation. According to LSEG, TheStreet expects Capital One to report second-quarter revenue of $15.77 billion and EPS of $4.75. Due to the complexity of Discover’s integration, year-over-year results are difficult to compare. However, these forecasts will continue to improve through the first quarter of 2026 and the fourth quarter of 2025. “Fairbank needs to explain why he made the acquisition. He needs to streamline the business,” Jim Cramer said at last week’s July monthly meeting. Jim believes the CEO will do just that this quarter, giving Capital One stock a chance over the long term to revisit its Jan. 6 all-time high of about $259. Capital One stock, trading at about nine times expected earnings, is “the cheapest major bank in the country,” Jim said. A complicating factor in the short term is that the stock is up 20% since hitting a 52-week low of just over $174 on June 11. I don’t like it when stock prices skyrocket before earnings. That’s because it raises the bar for how much investors pay for their earnings. In this case, the bar is still quite low, and despite the five-week rally, the stock would need to rise about 24% to reach its all-time high again. So perhaps the recent rally is not as big a factor as usual. COF 1Y Mountain Capital One Year-to-date Stock Price aside, Capital One remains in the spotlight and needs to provide more visibility as it looks to achieve its Discover deal goals of 15%+ EPS growth and total annual synergies of $2.7 billion by 2027. Synergies are just a fancy way for companies to explain what value they expect to add from a deal. This includes not only cost savings through headcount reductions, but also new revenue opportunities made possible by consolidating operations. Capital One insists it is on track to meet these goals. Capital One was happy to add Discover’s large credit card base, but Discover’s payment network was something it didn’t have and was at the mercy of Mastercard and Visa. By moving its cards to the Discover network, Capital One will be able to process its own transactions and save on the high fees charged by Mastercard and Visa. Capital One is “substantially complete” in migrating its debit cards to the Discover network, CFO Andrew Young said in April. Moving cards to the Discover network is “more of a next year thing,” Fairbank said. By owning a payments network, Capital One becomes something of a one-stop shop like American Express. However, while Capital One serves a wide range of income groups, Amex’s customers are wealthier. Capital One’s acquisition of corporate expense management platform Brex (which closed in April) makes the company look more like Amex. “The last few quarters have been a little mixed. Can we really start to drive cost synergies, or at least tell that story?” said Jeff Marks, club portfolio director. “There’s been a lot of investment so far to really leverage the Discover deal and build out that global network. So, as a shareholder, we also want to look at the cost synergy aspect.” This is especially important because it’s one of the variables that Capital One actually has control over. That’s because a range of external factors, including economic uncertainty and President Donald Trump’s policy threats, will continue to put pressure on stocks in 2026, with stocks still down 14% since the start of the year. Back in January, stocks at one point fell more than 6% after President Trump called for a one-year cap on credit card interest rates of 10%. That would have significantly lowered fees, Capital One’s main source of revenue. However, the president never acted on the proposal, which required parliamentary approval. Moving on, Capital One stock hasn’t fully recovered yet. Persistent inflation, soaring oil prices due to the Iran war and speculation that the Federal Reserve’s next monetary policy move will be to raise interest rates have made investors wary of pouring money into consumer-focused stocks like Capital One. Higher interest rates may benefit credit card companies’ bottom lines, but they may also lead to more defaults and lower consumer spending. Argus analyst Stephen Biggar said concerns were further heightened by the fact that the US had become a “K-shaped economy”, meaning wealthy households were thriving from rising property values, while low-income households were being squeezed by persistent consumer inflation. This would expose Capital One to further risk, as the company’s books would have increased exposure to subprime debtors. “As a result of the K-shaped economy, low-income groups are underperforming a little bit,” Biggar, who rates the stock as a buy, said in an interview with CNBC. “Capital One is very exposed to this issue.[Credit cards]are basically 70% of their business, so that raises some concerns about the stock price.” The analyst also noted that Capital One built up “fairly large” reserves last quarter. This is money set aside to cover potential future losses. He said the market may have viewed this as a negative because it highlighted “the expected deterioration or deterioration in credit quality.” The hope is that Capital One won’t need these reserves, since the major banks that have released earnings so far haven’t cited consumer health as a major concern. “Consumer spending is up, depreciation is low, and investment savings are increasing across customer segments,” Wells Fargo CEO Charlie Scharf said on the company’s latest post-earnings conference call. “Companies are cautious, but balance sheets and cash flows remain strong, resulting in strong credit performance. Labor market and wage growth remain strong, although affordability and inflation concerns exist,” Scharf added. “Markets and the U.S. economy have successfully absorbed macroeconomic and geopolitical uncertainty.” Scharf’s views on consumer behavior are particularly important and relevant to reading Capital One’s coverage. Wells Fargo, the club’s namesake, has a huge consumer banking and lending business, and credit cards are emerging as a growth opportunity for banks. The company reported a 46% year-over-year increase in new credit card accounts in the second quarter. (Jim Cramer Charitable Trust is long) COF, WFC. See here for a complete list of stocks. ) Subscribers to Jim Cramer’s CNBC Investing Club receive trade alerts before Jim buys or sells stocks in his charitable trust portfolio. If Jim talks about stocks on CNBC TV, he will wait 72 hours after issuing a trade alert before executing a trade. Information is subject to our Terms of Use and Privacy Policy, along with our disclaimer, and no fiduciary duty or obligation exists as a result of receipt of information provided in connection with the Investment Club. A specific result or benefit is guaranteed.
