Jim Cramer is betting big on a financial stock that is seeking ‘global domination’
Capital One stock hit a new record high on Wednesday, and Jim Cramer believes it’s not done running yet. Shares of the credit card issuer rose as much as 6.9% Wednesday morning despite a noisy quarterly earnings report Tuesday evening. While shares came off their highs of the session, Capital One’s earnings report nevertheless validated Cramer’s long-held belief that the financial stock can climb even higher now that its blockbuster $35 billion acquisition of Discover is complete. Capital One is going for “global domination” in the credit card industry, Cramer said on “Squawk on the Street” on Wednesday. Now that it owns Discover’s coveted payments network, Capital One is in a position to reduce the amount of fees it pays to Mastercard and Visa and better compete against American Express in the pursuit of high-spending clients. American Express had previously been the only card issuer to own a payments network. Longtime Capital One CEO Richard Fairbank “is going for it,” said Cramer, who runs the CNBC Investing Club. Cramer’s Charitable Trust, the portfolio used by the Club, took a stake in Capital One in early March. “He’s going to go for a worldwide card, and I would not go against Richard Fairbank, hence why it is up $10 [a share] off a quarter that is very confusing, but is clearly going in the right direction.” Capital One currently trades around 12 times forward earnings, according to FactSet, while American Express commands a P/E ratio of nearly 19. Cramer argued that as investors realize the benefits of the combined company, that gap should narrow. “The multiple would still go up very big [if it trades closer to American Express’s valuation], and that’s why this stock is roaring today,” he said. Fairbank reiterated the benefits of the Discover deal during Tuesday’s earnings call. Capital One now doesn’t only issue credit cards, but it can collect fees from its transactions as well. “There are only two banks in the world with their own network, and we are one of them. We are moving to capitalize on this rare and valuable opportunity,” he said. The Investing Club has added to its position in Capital One multiple times this year, most recently in May at roughly $186 a share. The Club has a $250 price target on Capital One, implying a more than 15% upside from its Tuesday close.
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