On Tuesday, Capital One Financial (NYSE:COF) announced it reached a deal to acquire Discover Financial Services (NYSE:DFS) in an all-stock transaction. According to analysts at Goldman Sachs, the deal has "strategic merit for COF."
This is because it would increase the company's scale in the card business and add a network that "over time could allow COF to move its issued cards from V/MA to its own network, which could result in meaningful synergies," the investment bank said in a note.
"We note COF trades like a hybrid bank," wrote analysts at Goldman Sachs. "Therefore, the financial metrics may not appear to be directly comparable to traditional bank deals, which typically include low TBV dilution and a short earnback."
"COF estimates EPS accretion of at least +15% in 2027, and our analysis implies accretion of +12-16% in 2026, which points to earnings power of ~$22-23/sh and a consolidated ROTCE in the mid-to-high teens range assuming COF's disclosed cost savings (~$1.5bn) and network synergies (~$1.2bn, see Exhibit 5 for more details)," analysts added.
The bank concluded that while they believe the deal makes a lot of sense strategically there could be some impact related to TBV dilution. In addition, the firm said the deal would make Capital One the largest issuer of credit card loans in the US.