Capital One COF and American Express AXP are major players in the U.S. financial services industry, primarily focusing on credit card issuance and consumer lending. They generate a large part of their revenues from interest income, transaction fees and customer spending.
COF and AmEx target consumer and small business segments, but their business strategies are different. While AXP leans more toward affluent, premium cardholders with a closed-loop payments network, COF operates more as a traditional bank with a large credit card portfolio and auto lending presence.
The financial performance of Capital One and American Express is closely tied to interest rates, consumer spending, employment trends and inflation. In the current environment of macroeconomic uncertainty, persistent inflation and elevated interest rates, both companies are facing mounting pressures. Investor sentiment has turned cautious, reflected in recent stock declines — COF is down 6.6% and AXP has fallen 11.2% over the past three months.
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Hence, the question arises: Which credit card firm — COF or AmEx — is a better choice for investors as they navigate the challenging macroeconomic backdrop? Let’s find out.
The Case for Capital One
In a strategic move to enhance its market position, Capital One announced a $35 billion all-stock acquisition of Discover Financial Services DFS in February 2024. This deal, expected to close on May 18, will make the company the largest U.S. credit card issuer by balances and significantly expand its payment network capabilities.
The deal gives Capital One control of Discover Financial’s payments network—one of only four in the United States—generating greater revenues from interchange fees and offering strategic independence from Visa V and Mastercard MA. The merger is expected to create significant expense and revenue synergies and strengthen its digital banking capabilities.
Over the years, the company has pursued a strategic acquisition strategy to diversify its offerings and expand its market presence. Some of the notable ones are ING Direct USA, HSBC's U.S. Credit Card Portfolio and TripleTree. These acquisitions have been instrumental in transforming Capital One from a monoline credit card issuer into a diversified financial services firm with a significant presence in retail banking, commercial lending and digital banking platforms.
Though the company’s revenues declined marginally in 2020, the metric witnessed a five-year (2019-2024) CAGR of 6.5%. In the same time frame, net loans held for investment recorded a CAGR of 4.3%. Revenue prospects look encouraging given the company’s solid credit card and online banking businesses, Discover Financial's buyout and decent loan demand.
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Capital One is likely to keep benefiting from higher interest rates and a steady demand for credit card loans. As such, the company’s net interest income (NII) and net interest margin (NIM) have been rising. The company's NII witnessed a CAGR of 6% over the five years ended 2024. Also, NIM expanded to 6.88% in 2024 from 6.63% in 2023.
Further, COF, which primarily serves customers in the United States, Canada and the U.K., boast a solid balance sheet position. Though it slashed the quarterly dividend by 75% in 2020 based on the Federal Reserve’s requirements, Capital One restored it to 40 cents per share in the first quarter of 2021. Moreover, in July 2021, the company hiked the same by 50% to 60 cents per share and has maintained it at the same level.
The company also has a share repurchase plan in place. In January 2022, it authorized a repurchase program of up to $5 billion in shares, while in April 2022, it announced an additional $5 billion worth of buybacks. As of March 31, 2025, nearly $3.3 billion worth of repurchase authorization remained.
Meanwhile, given the current tough operating backdrop and tariff-related ambiguity, Capital One faces headwinds on consumer spending and the auto lending business. As such, its asset quality will likely be under pressure. Also, the company spends heavily on marketing (almost 20% of the total operating expenses) and technology.
The Case for American Express
American Express stands out by leveraging its unique position as a credit card issuer and a network operator. This dual role allows it to capture a larger share of transaction economics compared with peers like Visa and Mastercard, contributing to a more profitable and resilient business model.
Strong credit performance and operational efficiency remain core drivers of AmEx’s profitability, while rising cardmember spending and expanding lending operations help anchor stability in a shifting economic environment. While many U.S. consumers are feeling the strain of macroeconomic turbulence, AmEx’s premium-focused clientele remains willing to pay for the perks and rewards that come with its high-end credit cards.
While macroeconomic uncertainty may still weigh on billed business and revenue growth, American Express is showing resilience. Travel and entertainment spending remains strong, particularly in lodging, dining and entertainment areas where AmEx has doubled down. The April 2025 acquisition of Center enhances its footprint in high-end dining and lifestyle experiences, reinforcing its premium value proposition even amid current volatility.
Further, the acquisition of Kabbage, an online small business lender, in 2020 helped AmEx to rapidly grow its business in the domestic market and diversify revenue sources. The company has agreed to acquire Tock and Rooam, helping customers with reservations at high-end restaurants and exclusive venues.
Revenues, net of interest expenses, witnessed a three-year CAGR of 15.9% (ended 2024). Additionally, AXP anticipates revenues to increase 8-10% for 2025 from $65.9 billion in 2024.
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Financially, AmEx is on solid footing. As of March 31, 2025, it had $52.5 billion in cash and cash equivalents, up from $40.6 billion at the end of 2024. Short-term debt was $1.6 billion. Given its earnings strength and solid liquidity position, the company’s enhanced capital distribution plans look sustainable. In March 2025, it announced a dividend hike of 17% from the prior payment to 82 cents per share.
The company also has a share repurchase plan in place. In March 2023, it authorized a repurchase program of up to 120 million shares, with no expiration date. As of March 31, 2025, nearly 72.9 million shares remained available under the program.
Nonetheless, despite showing resilience, AmEx’s business model exposes it to credit risk, especially in an economy grappling with inflationary pressures and higher-than-normal interest rates. The lingering macroeconomic headwinds and tariff uncertainties are expected to weigh on its financials to some extent.
How Do Estimates Compare for COF & AXP?
The Zacks Consensus Estimate for COF’s 2025 and 2026 revenues implies year-over-year growth of 4.7% and 5.1%, respectively. Further, the consensus estimate for earnings indicates an 11.3% and 16.8% rise for 2025 and 2026, respectively. Earnings estimates for both years have remained unchanged over the past week. (Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.)
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On the contrary, analysts are more bullish on AmEx’s prospects. The consensus mark for AXP’s 2025 and 2026 revenues suggests a year-over-year jump of 8.2% and 8.1%, respectively. Also, the consensus estimate for earnings suggests a 13.9% and 14.8% surge for 2025 and 2026, respectively. Earnings estimates for both years have remained unchanged over the past seven days. Further, management expects earnings in the range of $15-$15.5 per share for 2025.
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Capital One & American Express: Valuation & Other Comparisons
Valuation-wise, COF is currently trading at the 12-month forward price-to-earnings (P/E) of 11.32X, higher than its five-year median. The AXP stock, on the other hand, is currently trading at the 12-month trailing P/TB of 17.24X, lower than its five-year median.
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While American Express commands a premium over Capital One, its valuation is justified, given its superior growth trajectory.
Additionally, AmEx’s return on equity (ROE) of 32.48% is way above Capital One’s 9.63%. AXP also outscores the S&P 500 ROE of 17.05%. This reflects AXP’s efficient use of shareholder funds to generate profits.
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COF’s dividend yield of 1.29% is slightly higher than AmEx’s 1.19%. Nonetheless, both are lower than the S&P 500 average dividend yield of 1.59%.
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COF or AXP: Which Stock is a Smart Investment Option?
Capital One and American Express are leading U.S. credit card issuers and consumer lenders, operating in the financial services sector. Both are taking proactive steps to navigate the uncertain macroeconomic backdrop because of tariff plans and resultant price rises and higher interest rates for a longer period.
Capital One will be wrapping up one of the biggest deals of its lifetime later this month. Though the company has guided for solid cost and revenue synergies from the Discover Financial buyout, the near-term prospects look cloudy as integration is likely to take almost two years. Compounding this with the current challenging environment, COF doesn’t seem to be a solid bet now.
On the other hand, AmEx seems to be better placed to confront the current situation and offer robust returns to investors. The company continues to demonstrate strength through its premium client base, solid financials and strategic investments in travel, dining and younger demographics. This makes it a better investment choice. While AXP stock might seem pricey against COF, its premium valuation is justifiable considering the higher growth expectations.
Currently, Capital One and American Express carry a Zacks Rank #3 (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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