Capital One Financial's (COF) acquisition of Discover Financial Services (DFS) will enable it to compete more effectively with the banking industry's credit card network and deposit-gathering goliaths, UBS said Monday.

"At [about] $180, COF does not appear to be pricing in the deal. We think this is due to heightened uncertainty of close, but we think the change in administration has increased the probability of close and we target 2Q25," the firm said in a note.

UBS upgraded its stock rating for Capital One to buy from neutral, while raising the price target to $235 from $168.

"We see a rare opportunity for investors to own a vertically integrated payments platform and card juggernaut, leveraging DFS's credit and debit networks to generate revenues without taking balance sheet or credit risk, and to lower the company's natural cost of funding," the firm said.

Assuming a Q2 deal closing, UBS said the combined company's 2025 diluted earnings per share could hit $17.10, compared with a projected standalone EPS of $11.30 for Capital One. The firm said EPS could be at $21.45 by 2026 and $26.20 by 2027 for the combined company, and sees it approaching $30 by 2029.

Price: 176.97, Change: +1.68, Percent Change: +0.96